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economic growth Archive

Thursday

3

July 2014

0

COMMENTS

Moore Says Conservatives Losing Their Way on Taxes

Written by , Posted in Economics & the Economy, Taxes

Stephen Moore alleges that conservatives are losing their way on taxes:

A new economic plan is circulating called “Room to Grow,” and one of its premises seems to be that tax rates aren’t important for the middle class. One of its key proposals is to increase tax credits to families with children and even possibly raise tax rates on others to pay for it.

The idea here is that middle-class families with kids are facing a financial squeeze and need relief.

It’s well-meaning, but a classic misdiagnosis of the problem at hand. “This is anti–supply side policy,” fumes Larry Kudlow of CNBC. “It’s just awful growth policy.”

He’s right, and here’s why: Giving every family an extra tax break, as opposed to incentivizing businesses to invest and expand and workers to work, does nothing to grow the economy. This is pure redistribution to families with children. It is better to give a man a fish rather than to teach him to fish, in other words.

This completely misunderstands the source of the economic anxiety facing families today. For most middle-class families, the central problem is not that taxes are too high. It’s that before-tax wages and salaries are not rising — they’re even falling for many income groups — thanks to Obamanomics. On average, the median household has lost about $3,000 of purchasing power since the recession began in 2008. Half of Americans think we are still in recession. The middle class is getting squeezed because the recovery is so feeble and jobs are so scarce, not because of tax increases.

Moore is exactly right. I haven’t looked through all the other policy proposals in YG Network’s “Room to Grow” – though as John Tamny points out in another eloquent take-down of its shortcomings, David Brooks loves it so presumably I will not – but on the question of taxes and economic growth they have failed to diagnose the problem for the reasons Moore mentions. This malady in conservative tax thought can even be traced back to the Bush administration, where Keynesian assumptions were embraced in 2001 with “tax rebates” that failed just as thoroughly to “stimulate” the economy as Obama’s spending. There were, in a second attempt in 2003, better tax cuts under Bush that were more oriented toward supply-side growth, but the point is that conservatives sometimes buy into their own form of erroneous economic populism.

The point is not that taxes are not part of the problem – they certainly are – but rather that the problems caused by the tax code are its numerous disincentives for work, savings and investment. It is suppressing economic growth by punishing productive behavior. Those incentives need to be corrected, and that’s not done through gimmick handouts and a further narrowing of the tax base.

Friday

1

February 2013

0

COMMENTS

No, Defense Spending Decline Not Behind Lackluster Economy

Written by , Posted in Big Government, Economics & the Economy

President Obama has found a new way to blame Republicans for his poor economic record. The government released preliminary GDP numbers for the 4th quarter of last year, and they were not good. The popular spin coming from the White House, his ideological echo chamber and the sycophantic media has been that government spending cuts, namely to defense, are to blame. In other words, it’s the fault of those wascally Wepublicans.

The claims being made are partly true, in that reducing government spending will, at least in the short run, reduce GDP. But that’s a tautology – GDP is defined to produce that result. It tells us nothing about the drivers of economic growth. Where the claims go wrong is in asserting that the same relationship exists between government spending and actual economic health. GDP is just a tool for measuring the economy, and it’s not even the best one. Dan Mitchell explains:

GDP numbers only measure how we spend or allocate our national income. It’s a very indirect way of measuring economic health. Sort of like assessing the status of your household finances by adding together how much you spend on everything from mortgage and groceries to your cable bill and your tab at the local pub.

Wouldn’t it make much more sense to directly measure income? Isn’t the amount of money going into our bank accounts the key variable?

The same principle is true – or should be true – for a country.

That’s why the better variable is gross domestic income (GDI). It measures things such as employee compensation, corporate profits, and small business income.

These numbers are much better gauges of national prosperity.

Consider this. We are being asked to believe that the US economy took a hit because the government spent less on defense. For that to be true, we must accept the flip side that defense spending grows the economy? But is that true? Certainly defense spending, up to a debatable level and excluding waste, has value to society in that it protects us from harm. But that’s not the same as making us wealthier. In fact, we accept that we are sacrificing a bit of wealth to pay for security. But let’s not pretend there’s no sacrifice at all – that we wouldn’t have an even higher standard of living if government wasn’t taking that money in the first place. Of course we would. Every tank is a neighborhood never built, or an office building that couldn’t be funded, or a business that wasn’t be expanded.

Put another way, if defense spending grew the economy, then all it would ever take to end a recession is to increase defense spending. That’s essentially the Keynesian stimulus argument, though for ideological reasons they typically prefer other forms of government spending than defense. But that’s not how the economy works.

The point is that how we measure things can deceive us if we do not differentiate the statistical tool itself from the thing it is measuring. The economy does not grow because government redistributes wealth, it grows when capital accumulated through savings and investment is put to use.

Thursday

24

January 2013

0

COMMENTS

Economic Luddites Blame Obama Economy On Technology

Written by , Posted in Economics & the Economy

Many of us mocked the president when he blamed ATM’s for his poor economy. Now, a pair of Luddites at the AP are working hard to continue the attack on technology as the source of our economic ills, conveniently distracting attention away from the failed policies of the president.

They write that, “The uncomfortable truth is technology is killing jobs with the help of ordinary consumers by enabling them to quickly do tasks that workers used to do full time, for salaries.” The horror! They go on to make sure you understand that your greedy and selfish desire to save time and live a more prosperous life are to blame:

Use a self-checkout lane at the supermarket or drugstore? A worker behind a cash register used to do that.

Buy clothes without visiting a store? You’ve taken work from a salesman.

Click “accept” in an email invitation to attend a meeting? You’ve pushed an office assistant closer to unemployment.

Book your vacation using an online program? You’ve helped lay off a travel agent. Perhaps at American Express Co., which announced this month that it plans to cut 5,400 jobs, mainly in its travel business, as more of its customers shift to online portals to plan trips.

Software is picking out worrisome blots in medical scans, running trains without conductors, driving cars without drivers, spotting profits in stocks trades in milliseconds, analyzing Twitter traffic to tell where to sell certain snacks, sifting through documents for evidence in court cases, recording power usage beamed from digital utility meters at millions of homes, and sorting returned library books.

You see, all your newfangled technology has eliminated jobs! Don’t you feel bad yet?

Of course, if the AP really believes that hiring expensive workers to do what can be done cheaper and better by technology is the way to promote a strong economy, then they should lead by example. I have some suggestions:

  1. Require employees to use a pulled rickshaw instead of cars. How can they morally justify driving when they are depriving someone the opportunity to pull them around wherever they want to go?

    Backward is forward!

  2. Burn all company computers, replace them with typewriters and hire typists to take dictation. It’s not fair for writers to also transcribe their words, depriving someone else of the opportunity to do so. Nor should they benefit from modern conveniences like word processors and spellcheck, which reduce the amount of editors needed.
  3. Ban the pushing of elevator buttons by employees and instead hire operators. It’s unconscionable to take advantage of technology that allows riders to operate elevators when it used to require someone standing on an elevator all day pulling a lever.
  4. Speaking of which, every door must have its own doorman and bathroom its own attendant. Want to open a door or wipe your butt for yourself? You must hate jobs!

On and on it could go. The list of activities made easier, and jobs made obsolete, by technology is nearly endless. And contrary to the new economic luddites, it’s neither new nor alarming.

Great leaps forward in prosperity and standards of living come on the heels of massively disruptive technological advances. It once took the vast majority of available labor just to feed the nation’s population. When technology made farming less labor intensive, the work force was freed up to produce in new ways. The industrial revolution was the result. As advances in manufacturing have over time continuously allowed us to produce more with less, labor has been freed up to engage in other activities. The information revolution soon followed.

But from now on, we are lead to believe, those freed from one task by technology have no other task to tend to. History stops today. There is nothing left to do. We’ve built everything. Invented everything. Provided every service. Created every piece of entertainment.

Does anyone really believe that?

When all is said and done, the only real “evidence” provided in the piece for the end-of-all-new-jobs thesis is that job growth is slow at present. But might not there be other explanations? Just spitballing here, but how about an onerous and recently passed health care law? A cumbersome and destructive tax code? A critical mass of costly regulations?

Or we can just blame the robots.

Monday

3

September 2012

2

COMMENTS

In Need of Capital Day

Written by , Posted in Economics & the Economy, Free Markets, Taxes

The Department of Labor cites Labor Day as “dedicated to the social and economic achievements of American workers,” adding that “it constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.” Celebrating the hard work of Americans with a yearly day off is fine with me, but there are additional forces contributing to the “strength, prosperity, and well-being of our country” also worthy of recognition. Perhaps the time as come, for instance, for a Capital Day.

Hard work is important. Americans have long considered a strong work ethic a virtuous quality, and this has been to our advantage. But hard workers are all over the world, and the US hardly leads the world in average hours worked. Yet America is consistently at or near the top in worker productivity. What accounts for this discrepancy? Simply put, capital.

Another way to look at American prosperity is this: hard work is a necessary, but insufficient, condition for achieving prosperity. Give even the hardest worker a spoon, and it will take a long time to build a ditch. Give that same worker a shovel, and it will take less time. Now give that worker an expensive digging machine and that ditch will be completed exponentially faster. That is where growth in worker productivity comes from.

The mixing of capital and labor is where the true magic happens, and American prosperity is due to our once unique devotion to an economic system – the free market – that most efficiently matches these two ingredients.  Unfortunately, America today is no longer the most devoted to economic freedom, and the trend is heading in the wrong direction. A less free economy, generally speaking, will mean more inefficient distributions of capital and labor, resulting in a less productive workforce and thus a less prosperous economy.

In order to invest capital in our workers, we first need capital to invest, and that means savings. Unfortunately, neo-Keynesian economic thought can be reasonably accurately summed up as “savings = bad; spending = good.” Just consider the examples of politicians asserting that unemployment checks or food stamps boost economic growth because the recipients are more likely to spend it.  And then there’s the many government policies which reduce or inhibit capital formations, like direct taxes on capital such as the capital gains tax or death taxes, financial regulations and laws which discourage US investment, and other costly burdens on business – such as Obamacare.

So while we celebrate the contributions of hard working Americans of all stripes, we should keep in mind the importance of capital in achieving prosperity, a fact all too often forgotten by policymakers. Perhaps a yearly reminder in the form of a Capital Day is needed to do the trick.

Tuesday

14

June 2011

10

COMMENTS

Ignorance on Display: Obama Blames Increases in Productivity for Bad Economy

Written by , Posted in Economics & the Economy

Why can’t people find work? It’s the ATMs, stupid!

President Obama explained to NBC News that the reason companies aren’t hiring is not because of his policies, it’s because the economy is so automated. … “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

This is really a special kind of ignorance. It is also the product of so much focus on jobs simply as an end. If the objective s just for everyone to have jobs, you think stupid things like that if you eliminate automation more people will have work. As the apparent leader of the new regressive movement, Obama has caught on to the fact that technology allows us to do more for less work. Clearly, eliminating the technological gains of the last decade, half-century, century, or more, would mean more people working for less output. A jobs utopia!

I’m sure my learned readers see the fault in this reasoning. If it takes more labor to produce less output, then everyone has less, because there is less to go around. Once upon a time, it took a lot more labor to produce the food needed to feed the populace. In the late 18th century, more than 90% of US workers were employed in agriculture. But thanks to technological innovation, the number of workers required to produce the amount of food the population needed soon plummeted. By Obama’s reasoning, that should have been a disaster for the economy! In reality it was quite the opposite. With all that labor freed up for other purposes – and the necessary food still being produced – the economy soared, ushering in the industrial revolution.

There is no end to the productive purpose for which labor can be employed. Making current endeavors more efficient does not, as Obama claims, reduce unemployment – it merely shifts labor to new sectors, where new waysare found to make our lives better. And that, ultimately, is what work is all about.

So no, improved efficiency is not a “structural issue” in the economy; it’s a structural benefit. Structural issues are the things created by big government proponents – such as Barack Obama and his predecessors – that punish productive people for being productive (capital gains taxes, excessive regulations, highly progressive tax rates, etc. etc) and reward unproductive people (often those with particularly strong political connections).

Not that we needed any further evidence against the futility of central planning, but is there any case at all remaining when the would-be planners are this ignorant?

About Me

profileI serve as Vice President of the Center for Freedom and Prosperity, a non-profit think tank dedicated to preserving tax competition and free markets. This site features my personal views, which are not reflective of CF&P.

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