Category Archives: economic growth

Why America is Going Broke

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I am a candidate in the May 15 Nebraska Republican Primary for the U.S. Senate because the incumbent, Deb Fischer, is ignoring our enormous and out-of-control national debt. In fact she recently voted twice to make it worse.
The new tax law, in spite of its good individual features, increases our debt by $1 trillion over the next ten years, even after new growth is taken into account.  The new budget agreement increases spending by hundreds of billions of dollars.  Fischer voted for both of these measures.

The Hoover Institution analyst, John Cogan, summarizes our dire fiscal situation in the above chart which compares three major categories of federal spending since 1950: defense, entitlements and all other.  Entitlement spending is steadily increasing.  The other two categories have stabilized at about 3.5% of GDP each.
The Manhattan Institute scholar, Brian Riedl, explains why this situation is so serious that it is already an emergency:

  • Between 2008 and 2030, 74 million baby boomers, will retire into Social Security and Medicare, at the rate of 10,000 per day.
  • Today’s typical couple has paid $140,000 into Medicare and will receive $420,000 in benefits, largely because physician and drug benefits are not prefunded with payroll taxes (only hospitalization is). Social Security recipients also come out way ahead.
  • The demographic challenge is much worsened by rising healthcare costs.
  • The imbalance is so large that something has to give. Doubling the top tax rates of 35% and 37% to 70% and 74% (I.e. taxing the rich) would only cover 1/5 of the long term shortfall in revenue. An increase in inflation (purposeful or not) will not dilute away our debt. Social Security and Medicare benefits are also tied to inflation. Faster inflation would also increase interest rates and therefore interest payments on our rapidly growing debt.
  • Restructuring cannot wait. Every year of delay sees 4 million more baby boomers retire and get locked into benefits which will be difficult to alter. “Reality will soon fall like an anvil on Generation X and Millennials as they find themselves on the wrong side of the largest generational wealth transfer in world history.”

Conclusion. A severe form of fiscal cancer is gradually creeping over the body politic. We ignore it at our grave peril.

Why the U.S. Debt is so Scary III. The Disconnect

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Most of my readers know that I am a candidate in the May 15 Nebraska Republican Primary for the U.S. Senate, against the incumbent Deb Fischer because she is ignoring our enormous and out-of-control national debt. In fact she has recently voted twice, for the new tax law and new budget, to increase our annual deficits by hundreds of billions of dollars per year.
The only way to “fix the debt” is to begin shrinking our annual deficits.  She is moving us in exactly the wrong direction that we need to go.
My last two posts, here  and here, explain why our debt is so scary: we risk losing our status as the world’s leading economic power and, furthermore, a new crisis could occur much sooner than many people expect.


Unfortunately for the future of our economy, the new tax law is gaining support amongst the American population, with approval having now reached 50% and disapproval having sunk to 45%. Yes, the new tax law will increase economic growth in the next two years before the extra stimulus fades away.  But the additional debt will greatly hurt our economy in the long run.


Conclusion. The national Republican leadership has sold the American people a bill of goods. At a time when economic growth is already picking up speed, the Republican Congress has stepped on the gas to yield an additional short term stimulus at the great risk of long term harm.  This is highly irresponsible a endangers the Republican Party’s reputation for fiscal responsibility.

The Republican Party is Jeopardizing its Moral Credibility

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I have been a Republican for most of my adult life because I have usually considered the Republicans to be the party of fiscal responsibility. But is this still true? Consider:

  • Our national debt now stands at 77% of GDP (for the public part on which we pay interest) and was already predicted to reach 98% of GDP in 2027, just ten years from now. Now, with the new tax law and the new budget deal, deficits are likely to reach 109% of GDP by 2027.

  • In numerical terms, our current $20.5 trillion debt was already set to increase by $11 trillion over the next ten years. The new tax law will add $1 trillion to the debt (after taking new growth into account). The new budget deal adds another $1.7 trillion.  In other words new debt, on top of our existing debt, will be close to $14 trillion over the next decade.

  • The Republican Party now controls the Presidency and both houses of Congress and therefore has absolutely no excuse for such fiscal extravagance.

I am a candidate in the Nebraska Republican Primary for U.S. Senate against the incumbent, Deb Fischer, because she is offering no resistance to this flagrantly rotten charade. Last fall, it would have taken only three Senators to stop the trillion dollar giveaway in the new tax law and not one single Republican Senator voted against it.

Conclusion. The Republican Party is now endangering its critical role in making sure that the federal government acts in a fiscally responsible manner. I shudder to think what will happen to our country without a major party offering fiscal restraint.

Nebraska Senator Deb Fischer is Fiscally Irresponsible!

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I am a candidate in the May 15 Nebraska Republican Primary for the U.S. Senate against the incumbent Deb Fischer because she is ignoring our enormous and out-of-control national debt.  In fact, she is doing much worse than just ignoring it; she is actively making it much worse.  For example:

  • Fischer voted for the new tax law which increases our debt by $1 trillion over ten years even after new growth is taken into account.  The main features of the new law are excellent but need offsets to avoid losing tax revenue.

  • The budget just approved by Congress and signed by President Trump, for this year and next, will increase the debt by $300 billion. It means that the deficit for FY 2018 will be $800 billion followed by $1.2 trillion for FY 2019 (see first chart).  In FY 2027, just ten years away, the annual deficit is projected to increase to $2.1 trillion (see second chart).

  • On Senator Fischer’s watch, for the six Fiscal Years 2014 – 2019, the new debt is likely going to be $4.5 trillion (just add up the totals for these years in the chart above). This means that by the end of her six year term in office, 20% of our entire debt of $22.5 trillion, will have been accumulated while she was in office!

Conclusion. The national debt now $20.5 trillion and growing rapidly, is by far our biggest long term problem. We badly need representatives in Congress who will stop ignoring this awful problem and start doing something about it.  That is why I am a candidate for the U.S. Senate.

The Oracle of Omaha Speaks on American Progress

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“In the years of growth that certainly lie ahead, I have no doubt that America can both deliver riches to many and a decent life for all. We must not settle for less.”            Warren Buffett, Time Magazine, January 15, 2018

As the readers of this blog know well, the two main topics I discuss are: 1) our massive debt, now 77% of GDP (for the public part on which we pay interest), the highest it has been since WWII, and predicted by CBO to get much worse without major changes in current policy, and 2) slow economic growth, averaging just 2% of GDP annually ever since the end of the Great Recession in June 2009.  Naturally I am always interested to relate the views of others to my own.


In the current issue of Time,  Mr. Buffett makes the simple argument that, with .8% growth in population each year (births minus deaths plus immigration), 2% GDP growth overall leads to 1.2% annual growth of GDP per capita.  This means that in just 25 years, or one generation, our current $59,000 GDP per capita will increase to $79,000 GDP per capita. This is very impressive.  The problem, of course, is that the average GDP per capita is not evenly distributed.
Here are the two most common political reactions:

  • Democratic. 2% growth is creating plenty of GDP per capita. It just needs to be distributed more evenly by raising taxes on the wealthy and spending it on more generous welfare programs for the less fortunate.
  • Republican. We can do better than 2% annual growth. If growth could be increased to 3% per year or maybe even just 2.5%, then the labor market will stay tight and produce more jobs and better paying jobs. Everyone will prosper, not just the well-off.

Conclusion. I greatly admire Warren Buffett. He is right about many things.  But I think we can do better than 2% annual growth.

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After the New Tax Law: Debt Is an Even Bigger Problem

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The Republicans in Washington are exuberant because passing the new tax law means that they finally have gotten something done. And the new law will have at least one highly beneficial effect:

  • The new 21% corporate tax rate will increase profits for domestic corporations and encourage multinational corporations to bring their foreign profits back home. Even if these profits are used to buy back company stock or are paid out in larger dividends, the new money will be put to use in the U.S. economy one way or another. This will give the economy a boost and create new and better paying jobs. This is how private enterprise works and it is the best economic system ever invented.

But at the same time the new law has two huge deficiencies which make it a net minus on the whole:

  • It adds $1 trillion to our debt over the next ten years, as scored by the joint Committee for Taxation, the official scorekeeper. And this is after the positive economic effect is taken into account.  Our debt is already 77% of GDP (for the public part on which we pay interest), the highest it has been since right after WWII, and will continue to get worse without major changes in public policy. As interest rates rise and return to normal historical levels, interest payments on the debt will increase quickly, creating a huge drain on the federal budget.

  • The trillion dollar artificial stimulus created by the new tax law, i.e. the trillion dollars in new debt, is likely to overheat the economy, which is now already growing at a 3% annual clip.  This means that inflation is likely to gain increased momentum, thereby causing the Federal Reserve to raise interest rates faster than it otherwise would. This means that interest payments on the debt will be pushed up even faster than otherwise. Without fiscal retrenchment, a new fiscal crisis is virtually inevitable in the relatively near future.

Conclusion. Fiscal restraint in Congress is now more urgently needed than ever, and it is going to be even harder to accomplish than before the new tax law was passed. I am an eternal optimist but it sure would be easy to get discouraged!

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Fixing Our Broken Healthcare System

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As I get organized to enter the 2018 Nebraska Republican Primary for U.S. Senate, I want to make it clear why I would challenge the apparently popular incumbent Senator Deb Fischer who is running for reelection. The reason is very simple and clear cut.  The new tax law which she voted for will raise our national debt by $1 trillion over the next ten years and likely overheat our already vigorously growing economy in the process.  In other words:

  • Our national debt, already sitting at 77% of GDP (for the public part on which we pay interest), is the highest it has been since right after WWII and already slated to get worse, even before the new tax law supported by Senator Fischer. When interest rates inevitably rise in the near future, interest payments on the debt will become a huge burden on our economy.

  • Controlling the cost of healthcare, which already eats up 18% of our GDP (and is growing much faster than GDP), is the key to shrinking our annual deficits and therefore being able to shrink our debt as well.

But is it possible to control healthcare costs within the framework of a free market? I think it is and here is one way to do it:

  • For private healthcare, repeal the employer mandate and replace the ACA income based tax credits with age based tax credits (which then apply to everyone). This will allow healthy employees to migrate away from employer provided health insurance towards individually underwritten health insurance (including Health Savings Accounts) at much lower cost. This saves money for employers and rewards healthy life styles. High risk pools for unhealthy people would receive federal and state subsidies.
  • Medicaid recipients would also be able to migrate into this new private system.
  • Medicare Advantage (Medicare Part C) would be required to offer Medical Savings Accounts which were authorized in 1997 but have not been widely utilized. This will make Medicare Advantage highly attractive to healthy people and encourage migration from regular Medicare (Part B) to Medicare Advantage.

Conclusion. The point here is not to try to insist on one particular way of controlling the cost of healthcare but to demonstrate that it can be done within a relatively free market framework.

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Shall I Enter the Nebraska Republican Primary for U.S. Senate?

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The tax bill was signed by President Trump on Friday and is now law. In spite of many good individual features, including the reduction of the corporate tax rate from 35% to 21%, it has the overall negative effect of adding $1 trillion to the national debt over the next decade, and this is after allowing for new growth.
Every Republican Senator voted for this new law.  That means every single one of them is responsible for increasing our debt by $1 trillion.  This includes Nebraska Senator Deb Fischer, who is up for reelection in 2018.  She needs to be chastised for voting for this atrocious law.
I am seriously thinking of entering the Republican Primary against her, if there is sufficient support for my candidacy.  Here is a summary of my views on the most important issues.  Roughly in order of importance:

  • Debt. Now worse than ever with the new tax law, we will soon be back to trillion dollar annual deficits.  The only real solution is to curtail the growth (no actual cuts needed!) of entitlement spending.  Otherwise a new fiscal crisis will soon occur.

  • Global Warming. The evidence for man-made global warming is overwhelming,  including warmer and more acidic oceans, shrinking artic sea ice, and rising sea levels. The best solution is to impose a (refundable!) carbon tax to replace all sorts of ad hoc and arbitrary regulations.
  • Economic growth. The U.S. is the most prosperous large country in the world and prosperity equates to economic growth. But our economy is now growing at a 3% annual clip and the new tax law is likely to overheat it and cause inflation to take off.  This will force interest rates up prematurely.
  • Trade Policy. Withdrawing from NAFTA would be a disaster for the whole country and especially Nebraska with its export based ag economy. It is China’s mercantilist policies, restricting imports from other countries, which need to be opposed.
  • Immigration Reform. With a national unemployment rate of 4.1% (2.7% in Nebraska), a severe labor shortage is developing. The solution is to establish an adequate guest worker visa program so that employers can be assured of having the employees they need.

Conclusion.  Senator Deb Fischer is simply unwilling to make the tough decisions necessary to shrink annual deficits and thereby control our burgeoning debt.  I would be a sensible replacement for her.  Will you support me if I run?  Let me know at jackheidel@yahoo.com.

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The Republican Party Is Putting its Reputation for Fiscal Responsibility at Great Risk

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The final Republican tax bill has now been passed by both the House and the Senate and awaits the President’s signature which is expected soon. It dramatically lowers the federal corporate tax rate from 35% to 21%.  This is highly beneficial as it will provide a big incentive for U.S. multinational companies to bring their foreign profits back home for spending and reinvestment.


The huge problem, of course, is that the tax rate cuts are not paid for by other offsets and will add $1 trillion over ten years to our already exploding national debt. In fact, we are likely to see trillion dollar deficits again as soon as FY 2019.


Here is a cogent analysis of the bill’s weaknesses by the Wall Street Journal’s Greg Ip:

  • Distortionary business tax breaks still remain such as for oil and gas drilling, electric cars and renewable energy. Also the “carried interest” loophole largely remains intact.
  • New breaks are created, most importantly a 20% deduction for businesses which pay taxes as individuals (pass throughs). This introduces “grave complexity” and creates huge incentives for tax avoidance.
  • The challenge of constraining entitlement growth has become much more difficult. The soaring cost of Social Security, Medicare and Medicaid is the main driver of our debt problem. The Democrats, having been excluded from developing the tax plan, will be far less likely to cooperate on entitlement reform.

Conclusion. Corporate tax rate reform, as desirable as it is, as been badly handled by the Republicans. The new tax law not only makes the debt much worse by itself but poisons the atmosphere for actually figuring out a way to effectively address entitlement reform, the key to getting debt under control.

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The New Tax Bill Is Likely to Take Us over a Fiscal Cliff

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The Republican tax bill has now come out of conference and will soon be voted on by both the House and the Senate. It is expected to easily pass both chambers and be signed by the President. As I have discussed extensively on this blog, I have no argument with the individual features of this bill.  They will definitely increase economic growth which is highly desirable.
The problem is that the tax bill will also add $1 trillion to the debt over ten years (as scored by the JCT).  It is simply outrageous for the GOP to consciously add $1 trillion to our already $15 trillion debt (the public part on which we pay interest), which at 77% and climbing, is the highest it has been since right after WWII.


But the damage will be even worse than this.  The trillion dollar artificial stimulus is likely to overheat an already briskly growing economy.  As the Economist reports in its latest issue:

  • Second quarter growth of 3.1% and third quarter growth of 3.3% are very strong.
  • Median household income grew 5.2% in 2015 and 3.2% in 2016.
  • The average net worth of households in the middle income quintile grew by 34% between 2013 and 2015.
  • The wages and salaries of production workers grew at a 3.8% pace in the third quarter of 2017.
  • The unemployment rate at the end of 2018 is likely to be between 3.4% and 3.8%.

Economic growth is good because it raises living standards across the board. But faster growth also means higher inflation which means higher interest rates as the Federal Reserve responds.  Higher interest rates mean higher interest payments on our massive debt. Every time the Federal Reserve raises interest rates by ¼ %, the interest payments on our debt will increase by about $38 billion per year.  A 2% increase in interest rates, likely within two years, means a $300 billion increase in annual interest (on top of the $266 billion paid in FY 2017).  Our massive debt will soon become a huge burden for the federal budget.

Conclusion. Adding $1 trillion to the debt on top of the existing debt is a terrible idea. Such artificial stimulus at a time when GDP growth is already picking up will drive up interest rates all the faster and greatly speed up the day of reckoning for extreme fiscal irresponsibility.

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