Do federal spending, deficits, and debt promote economic growth and prosperity?
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By 1981, President Reagan explicitly scrapped Keynesian economics for the more modern supply-side economics, which holds that economic growth results from incentives for increased production. The result was a 25 year economic boom with no significant inflation, the greatest period of wealth creation in the history of the planet, with more wealth created from 1982 to 2007 than in all prior American history combined.
But President Obama and his Rip Van Winkle Democrats have cast all that down the memory hole as well, and taken American economic policy right back to the 1970s as if nothing has happened since then. The result of this irresponsible, heedless, public policy malpractice has been disastrous for America’s working people, African Americans, Hispanics, and youth.
Previously, since World War II, recessions have lasted an average of 10 months, with the longest at 16 months. But by December, three years after the last recession started, the latest unemployment report showed the unemployment rate increasing again, to 9.8%, capping 16 straight months of unemployment at 9.5% or above, the longest such period since the Great Depression.
Unemployment among African-Americans had persisted during that period at 15% or above. Among Hispanics it persisted well into double digits as well. Among teenagers it was stuck at 25%, 45% for black teenagers. These groups were truly suffering a depression.
The total army of the unemployed and underemployed stood at over 26 million Americans. The BLS reported the U6 unemployment rate, which includes the unemployed, those marginally attached to the labor force (discouraged), and those working part time for economic reasons, at 17%.
Historically, the deeper the recession the stronger the recovery. But President Obama’s recovery has moped along at less than half the rate of prior recoveries from similarly deep recessions. By December, the economy should have been in its second year of a raging recovery with booming economic growth. Instead, a record 44 million were struggling in poverty, one in seven Americans, the highest for the 51 years that the Census Bureau has been tracking poverty, up 4 million over the prior year. The number of Americans receiving food stamps also soared to an all time record 40 million. CBO projects that Obamacare will ultimately put nearly 100 million Americans on Medicaid, the health care program for the poor.
As economist John Lott summarized at FoxNews.com, “For the last couple of years, President Obama keeps claiming that the recession was the worst economy since the Great Depression. But this is not correct. This is the worst ‘recovery’ since the Great Depression.”
President Obama, rebuked by the November political shellacking, finally relented in December and agreed to extend the Bush tax rate cuts for two years, for everyone. And that has allowed the breathing room for the long overdue recovery to now begin to sprout, with unemployment declining to 8.9% in the latest report.
The Voters Have a Hammer
But the economy still has a long way to go before traditional, booming, American economic growth is restored. The labor force participation rate remains stuck at its lowest level in 25 years. With the same labor force participation as before the recession, the unemployment rate would be 11.5% today. Those who have given up and dropped out of the labor force are still not working.
Even worse, the economy has just received a reprieve rather than a permanent stay of execution. President Obama is still pledging to raise the top tax rates of virtually every major federal tax in 2013 for singles earning over $200,000 per year and couples earning over $250,000, the bulk of the nation’s employers and investors. The Obamacare tax increases go into effect that year as well. The hammer will come down hardest as a result on working people, African Americans, Hispanics, and the young who have suffered the most under Obamanomics, as they continue to struggle with unemployment, declining incomes, rising poverty, and now rising inflation, just like in the 1970s.
But the voters have a hammer as well. Rest assured that the very question — do federal spending, deficits, and debt promote economic growth and prosperity? — will be taken to the voters in the 2012 election. And then we will see if the voters agree with President Obama, Nancy Pelosi, Dick Durbin, Paul Krugman, Robert Reich and Ezra Klein, or whether they agree with the Tea Party that federal spending, deficits, and debt are already so out of control that they threaten the very bankruptcy of America.
Rest assured that the voters will be asked in 2012 to decide as well whether President Obama’s scheduled 2013 tax increase tsunami should join his regulatory tsunami, or whether they think that will swamp the American economy.
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