Tag Archives: economic growth

How Can We Boost Stagnant Wages?

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Today’s Wall Street Journal has a column by Neil Shah, “Stagnant Wages Crimping Economic Growth”, pointing out that the average hourly pay for non-supervisory workers, adjusted for inflation, has declined to $8.77 last month from $8.86 in June 2009, when the recession ended.  It has also been reported recently, e.g. in the New York Times, that U.S. medium household income, now at $52,100, has not nearly recovered from its prerecession peak of $55,500 and is even below its $54,500 level in June 2009, at the end of the recession.
Lower income for workers and households mean lower consumer spending.  This is a major reason for our economy’s low annual growth rate of only 2% of GDP since the end of the recession.  Of course, the high unemployment rate, currently 7.4%, as well as increasing global competition, contribute to downward pressure on wages.  But there is another factor, directly under government control, which is a major contributor to stagnant and declining wages.
Washington Post columnist, Robert Samuelson, in a recent column reprinted in the Omaha World Herald, reported that, from 1999 to 2013, wages and salaries rose 50% (adjusted for inflation) while health insurance premiums increased 182%.
Most health insurance is provided and largely paid for by employers and is therefore an indirect form of compensation.  The huge disparity between wage gains and health insurance premium increases in recent years means that wages are being held back by the rapidly increasing cost of health care.  The U.S. spends 18% of GDP on healthcare, twice as much as any other country and this is clearly out of line.
The best single thing we can do to slow down healthcare inflation is to remove the tax exemption for employer provided healthcare (and offset it with lower overall tax rates).  Employees would then pay taxes on their health insurance benefits as part of their pay. This would have the beneficial effect of making consumers far more conscious of the true cost of healthcare and therefore consumers a strong incentive to hold down these costs.
It is up to Congress to change this provision of the tax code.  Let’s insist that they get this done!

Are Welfare Benefits Too High?

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The CATO Institute has just released a new study “The Work Versus Welfare
Trade-Off: 2013”, which analyzes the total level of welfare benefits on a state by state basis.  The authors, Michael Tanner and Charles Hughes, show that welfare pays more than a minimum-wage job in 35 states and, moreover, in 13 states, it pays more than $15 per hour. The authors recommend that Congress and state legislatures strengthen welfare work requirements, remove exemptions from working and narrow the definition of work.  Also many states should consider shrinking the large gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.
Clearly welfare benefits as well as disability payments, through the Supplemental Security Income (SSI) program of Social Security, have grown too large and have become a disincentive for many people to find a job.  Getting something for nothing is a moral hazard which induces an attitude of entitlement and helplessness.  It also causes the labor force participation rate to shrink and therefore hurts the economy.
Tightening up welfare payments and disability income are among the many actions
which Congress could take to speed up economic growth and lower government
spending.  We need more representatives in Washington who understand that change is needed and who can advocate effectively for policies which will get this done!

Is the Cost of Health Care Under Control?

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Today’s New York Times reports that “Health Care Costs Climb Moderately, Survey Says”.  The average annual insurance premium for a family rose 4% in 2013 compared with a 1.1% overall rate of inflation, according to the Kaiser Family Foundation which conducted the survey.  Since 1999 health insurance premiums have increased by almost 300% while consumer prices have increased by 40%.  As insurance premiums rise, deductibles are also getting bigger.  About 38% of all covered workers now face an annual deductible of $1000 or greater.  Dr. Drew Altman, CEO of the Kaiser Foundation, refers to this “quiet revolution” as an attempt by consumers to keep the cost of health insurance from rising even more quickly.
A 4% increase in insurance costs may seem moderate, but at almost four times the rate of inflation, it is really very large.  Obama Care is unlikely to have any impact in holding down such a rapid increase and, in fact, is likely to make matters worse because of massive new health care regulations which are coming.  The basic problem is that America spends 18% of GDP overall on health care, almost twice as much as any other country.
What can we do about this?  One major step would go a long way.  We need to remove the tax exemption from employer provided health insurance.  Employers could still provide health insurance for their employees, but the cost would be added to an employee’s salary for tax purposes.  This can be offset with a lower tax rate, of course.  But it would make employees, i.e. all consumers, far more conscious of the cost of healthcare and therefore to have a direct incentive to hold down these costs.  For example, Dr. Altman’s “quiet revolution” would pick up steam as employees raise deductibles even higher in order to lower overall costs.
How can we get going in this direction?  The Employer Mandate of Obama Care should be repealed, and not just postponed for a year.  Ideally, removing the tax exemption for employer provided health insurance would become part of the broad based tax reform which is so badly needed to stimulate the economy.
Our fiscal and economic problems can be addressed with smart leadership.  We should insist that our national leaders get going on such badly needed reforms!

Keep Squeezing the Budget!

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Monday’s Wall Street Journal has an Op Ed column by Stephen Moore, “The Budget Sequester Is a Success”, which points out that federal spending has actually shrunk from a high of $3.598 trillion in 2011 to $3.537 trillion in 2012 to a projected $3.45 trillion for 2013.  These spending declines are due to the Budget Control Act of 2011 which accompanied the 2011 increase in the debt limit.  The $100 billion per year budget sequester is a part of that agreement.  The current budget standoff between the Senate and the House is simply an attempt by the Democratic majority in the Senate to renegotiate the spending limits agreed to in 2011.
The sequester will continue to constrain discretionary spending but the two thirds of the federal budget devoted to entitlements is growing at a much faster rate than the overall growth of the economy.  The way out of this dilemma should be obvious to any rational, impartial observer.  We need to slow down the growth of entitlements and speed up the growth of the economy.  But this is much easier said than done!
Democrats will apparently not agree to do either of these two things.  Reining in entitlements takes political courage and the Democrats would rather be able to accuse Republicans of cruelty to the poor and the elderly than to actually address this problem in a serious manner.  Growing the economy faster will require appealing to investors and risk takers, with lower tax rates, for example, as well as loosening anti-business regulations.  Measures like these go against liberal ideology.
While we’re waiting for common sense to prevail in Washington, what more can be done to shrink still very large deficit spending?  There are all sorts of wasteful, duplicative and ineffective federal programs out there.  Fiscal conservatives should just keep going after them, one-by-one, and whittling them down.  Millions of voters and taxpayers will be thankful for this.

Is a ‘Do Nothing’ Congress Really a Serious Problem?

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Today’s Omaha World Herald reprints the article “Get-nothing-done Congress is disrespectful to democracy” by the Baltimore Sun writer, Andrew Yarrow.  Mr. Yarrow says that “the 112th Congress, which ended in 2012, passed fewer bills than any Congress in recent memory, and the current 113th Congress is on track to do just as badly.  …  What Congress does do often seems patently ridiculous.  …  We need to … ramp up public pressure to get something done, rather than just fight.”
But is the problem just to do something, anything, or is it rather to do something worthwhile?  And what if there is a fundamental disagreement, as there is today, about what is worthwhile?  One party thinks that the way to boost the economy and speed up the recovery is to increase artificial stimulus (government spending) and to pay for it by raising taxes on the rich.  The other party is appalled by the $6 trillion in deficit spending racked up so far by the current administration and wants to slam on the brakes.  Each side is working as hard as it can to prevail, especially by discrediting and embarrassing the other side.  How do you resolve a dispute like this?
There is really only one person who has the clout and visibility to get this done and that is the President.  But when the President is the divider-in-chief, spending much of his time and effort proposing unsound economic and fiscal policies, intended primarily for short term political gain, what is the other party supposed to do?  Acquiesce by passing new laws that will just make things worse?  Or by standing firm on principle and hoping that the general public will be able to understand and appreciate its opposition to bad policies?
This is the situation which we are currently in.  It makes for a difficult and unpleasant time.  The economy is slowly recovering from the Great Recession on its own.  Let’s hope that this trend continues and that we can muddle through our present political predicament.

The New York Times is in Denial

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An editorial in yesterday’s New York Times, “Republican No-Shows in the Budget Wars”, ridicules House Republican leadership for having the temerity to propose $4 billion in cuts from this year’s budgets for transportation and housing, and expecting Republican representatives to support such “draconian” cuts.  “But the House’s skittishness at the decidedly unpopular costs of some of the party’s budget strictures presented a revealing tableau of both hypocrisy and weakness: Republicans could not pass their own cramped vision of the future.”
The underlying problem is that the House Budget for discretionary spending for 2014, at $967 billion, is almost $100 billion less than the Senate’s $1058 billion budget.  The House insists on continuing the sequester cuts for the full ten years agreed upon when the sequester mechanism was set up two years ago.  The Senate is ignoring the sequester agreement because it wants to replace it by a combination of milder cuts and tax increases.  The Republicans would prefer to replace the across-the-board sequester cuts by a more rational budget cutting plan but the Democrats are unwilling to negotiate such a plan.
The Democratic Party, and its media supporters such as the New York Times, simply refuses to acknowledge that the United States has a fiscal problem.  $6 trillion in deficit spending in the last five years apparently does not make a serious impression.  The mantra is that we’ll worry about our enormous deficits, and exploding national debt, later, after the economy more fully recovers from the Great Recession.  But after four years of recovery such an argument makes no sense.  There are lots of effective ways to boost the economy but continued artificial stimulus (deficit spending) is not one of them.
Wake up, Keynesians!  We need to turn things around and the sooner the better.  Stop ridiculing the mostly Republican fiscal conservatives who are valiantly striving to accomplish this herculean task under the most trying circumstances.

What Is the Best Way to Reform the Tax Code?

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In today’s New York Times it is reported that President Obama, “Obama Proposes Deal Over Taxes and Jobs”, proposes “a cut in corporate tax rates in return for a pledge from Republicans to invest in more programs to generate middle class jobs.”  Reducing the top corporate tax rate from 35% to 28%, for example, balanced by tightening tax deductions and loopholes, would raise additional revenue on a one time basis as companies switch from one tax system to another.  It is this new one time revenue which would be spent on the president’s priorities.
The President’s proposal has given a boost to Senator Max Baucus and Representative David Camp, the chairs of Congress’s tax writing panels, “Lonely Bipartisan Push to Overhaul Tax Code Finally Gets Noticed”, who are working together to construct a broad based, pro-growth, plan to reform the entire tax code, for both individuals and corporations.
Which is the better way to proceed?  What is the best way to boost the economy? Revamping only the corporate tax structure to raise new tax revenue for public spending projects?  Or by eliminating as many deductions and loopholes as possible over all in order to enact the lowest possible tax rates for both individuals and corporations?
To me the answer is obvious.  It is investment, risk taking and entrepreneurship which create the most jobs for the long term.  The best way to stimulate the private economy is with the lowest possible tax rates for all.  It is unfortunate that the President will not accept this basic economic truth and work with Congress in a bipartisan manner to move the economy forward and create more jobs.

What Is the Best Way to Help the Middle Class?

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An article in yesterday’s New York Times, “Obama Says Income Gap Is Fraying U.S. Social Fabric”, quotes the President that “If we don’t do anything, then growth will be slower than it should be.  Unemployment will not go down as fast as it should.  Income inequality will continue to rise.  That’s not a future that we should accept.”  He says that “I will seize any opportunity I can to work with Congress to strengthen the middle class, improve their prospects, improve their security.”
A recent editorial in The Wall Street Journal, “The Inequality President”, shows with a chart that median household incomes have fallen from $54,218 in June 2009 as the recession ended to $51,500 in May 2013.  As the WSJ says, “For four and a half years, Mr. Obama has focused his policies  on reducing inequality rather than increasing growth.  The predictable result has been more inequality and less growth. … The rich have done well in the last few years, thanks to a rising stock market, but the middle class and poor have not.”
There are many things that Congress and the President could do to boost the economy if they were willing to work together and compromise.  Obamacare doesn’t need to be repealed, just modified by dropping the employer mandate which is a job killer.  Broad based tax reform, with lower tax rates, paid for by eliminating tax preferences, would be a big boost to investment, risk taking and entrepreneurship.  A reasonable compromise would be to use a part of the revenue raised from eliminating loopholes for deficit reduction.
But little progress will be made unless the President is willing to show leadership by rising above partisanship.  There are all sorts of ways he could do this.  One simple way would be to show that he understands the seriousness of the rapidly growing national debt by supporting some of the many thoughtful proposals for more government efficiency.
A large majority of people want our first African-American President to be successful.  But right now he is not on track to achieve this.

Get Out While the Getting Is Good!

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David Malpass, president of Encima Global LLC, has an op-ed in yesterday’s Wall Street Journal, “The Economy Is Showing Signs of Life”, pointing out that business loans, auto sales and hourly earnings are up.  Mr. Malpass says that “The sequester is a bad way to set spending priorities, but it reduces the risk of future tax increases, contributing to the upturn in consumer and business confidence. … The good news is that an end to the latest version of the Fed’s quantitative easing would create space for more growth in private credit and a shift back toward market, not government allocation of credit. …Because America’s private economy is the world’s biggest net creditor and capital allocator, the United States will be the biggest beneficiary of a return to market based interest rates, with vast potential in efficiency, intellectual property and the capacity to innovate.”
Federal Reserve Chairman, Ben Bernanke, is given much credit for the fact that the Great Recession did not turn into another depression.  But now, four years after the end of the recession, we have the twin problems of a slow growth economy, which keeps the unemployment rate much too high, and the potential for huge inflation caused by the vast increase in the money supply.  Mr. Malpass makes an excellent argument that the economy has recovered enough so that further quantitative easing will now retard future growth.  It clearly also increases the chance of runaway inflation.
Current artificially low interest rates also disguise the future damage now being created by huge federal deficit spending.  When interest rates go back up, as they inevitably will, interest payments on our rapidly increasing national debt will also increase dramatically, and force far greater cuts in federal spending than are currently being caused by the sequester.
In other words, to speed up economic growth, curtail the risk of future inflation and to put more pressure on Congress to control federal spending, the Federal Reserve should begin to exit from quantitative easing in the very near future!

Going On a Short Vacation!

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I began this blog last November, right after the national elections, to promote my strong view that the United States is on a dangerous fiscal course, with an already enormous, and still rapidly growing, national debt.  After four years in a row of deficit spending exceeding $1 trillion per year, the current year’s deficit is projected to be “only” $640 billion.  Far too many people, including many of our national leaders, interpret this to mean that the problem is getting solved and so we can relax.  But the already accumulated $12 trillion in public debt will cost our economy $600 billion a year, a significant fraction of total revenue, in interest alone when interest rates return to their historical average of 5%.
This is just the tip of the iceberg.  Federal spending is out of control all across the board.  Entitlement spending on Medicare and Medicaid is growing at twice the rate of inflation and is an especially acute problem.  But progress here depends on figuring out how to get healthcare costs in general under control, a huge challenge.  The much reviled sequester is working but it’s not nearly enough by itself to get discretionary spending under control.
Four years after the end of the Great Recession the economy is still limping along at 2% GDP growth and 7.6% unemployment.  And this is after enormous fiscal stimulus (deficit spending) as well as quantitative easing by the Federal Reserve.  Current policies are not working.  What we need is broad based tax reform with lower marginal rates (offset by ending tax preferences) to stimulate business investment and the private risk taking which propels the economy and creates jobs.  And, of course, faster economic growth will also increase tax revenue and therefore lower the deficit, as well as boosting employment.
This is a brief summary of what I’ve been saying for the past eight months.  To me it just seems like simple common sense, but not everyone agrees!  At any rate I’ll be out of town for the next two weeks.  I hope to be able to make a few new posts while I’m gone.  Stay tuned!