The so-called “abuse of power” indictment of Texas Gov. Rick Perry is not only not going to hurt him in the 2016 GOP sweepstakes but it might actually help him.
I say that because Perry immediately fired back at the charges with no hesitation, labeling the indictment the partisan political ploy that it really is. And in terms of threatening to veto legislation that would have funded the state’s Public Integrity Unit, run by Travis County district attorney Rosemary Lehmberg, Perry held his Texas constitutional ground. In a number of TV appearances, Perry not only said that he was legally authorized to defund the DA but that he would do it all over again if he had the chance.
As John Fund has written on National Review’s website, there’s a whole history of the liberal Travis County DA’s office trying unsuccessfully to criminalize politics with grand-jury indictments. None of it has worked before, and it’s highly unlikely that it’s going to work again. Even liberals such as David Axelrod, Jonathan Turley and Alan Dershowitz have essentially said that the DA has virtually no case.
Kind of reminds us of the phony Democratic DA charges leveled at Wisconsin Gov. Scott Walker.
If you followed this logic through in Washington, the Republicans would launch impeachment trials every time they disagreed with President Obama. And that would be a very bad idea. It would subvert the Constitution, just like in Texas.
It’s OK to have policy disagreements. But it’s not OK to criminalize them. Policies are decided by elections, legislatures, and chief executives. Not by grand juries.
Basically, Rick Perry argued that DA Lehmberg should resign from her office because of a DWI arrest, where she had three times the legal limit of alcohol in her system. She also made a ruckus during her arrest and eventually served some time in the pokey. Perry says that disqualifies her from her high office. Democrats say it doesn’t. OK, fine. Slug it out at the ballot box.
Returning to the 2016 implications of this event, as I said, Perry looked strong and tough in his quick reaction to the indictment. But he’s been doing a lot of that lately. Perry has won high marks for putting the Texas National Guard on the U.S.-Mexico border to halt the catastrophic flood of unaccompanied children from Central America. He’s been successfully campaigning in Iowa to elect Joni Ernst. And over the past year and a half, he’s been touring the country with his pro-growth, pro-business, “Texas model” of low taxes, deregulation and frivolous-lawsuit tort reform.
And he’s winning businesses over: Businesses are moving to Texas, where the business climate is a lot more hospitable than it is in New York, Illinois or California.
And Perry’s not shy about his record: In a very clever political-marketing campaign, when Perry enters high-tax states with poor business track records, his team runs TV and radio ads with the governor’s clear message of attracting businesses to Texas.
All of this is gradually erasing memories of the governor’s failed presidential campaign in 2012. It was a failure, in part, because he was just coming off a back operation. He shouldn’t have run in the first place. But frankly, Perry was not up to speed on a number of key issues.
But that was then, and this is now.
At a time when the country wants strong executive leadership at home and abroad, and with Barack Obama’s approval ratings collapsing on both fronts, Perry looks like a strong leader.
Now, let me make this very clear: I am not endorsing anyone for 2016. I know Gov. Perry very well, and I admire him enormously. But the same is true for Scott Walker in Wisconsin, Mike Pence in Indiana, John Kasich in Ohio, Jeb Bush and others. I am not taking a position. It’s way too early.
But I will say this: The GOP has a deep bench this time around. And the GOP governors — all across the country, really — have a strong “red state” economic-growth message. And after nearly six years of Obama business-bashing, with more to come in this midterm election campaign, the red-state Texas message is going to be a big relief to voters who believe strongly that the U.S. is moving in the wrong direction.
I’m not making a choice. But even with this crazy indictment, Perry will remain in the thick of it for 2016.
Sizing up last week’s unexpected congressional win by Florida Republican David Jolly, Kim Strassel of the Wall Street Journal wrote, “The Republicans who win this fall will be those who have serious answers to the attacks leveled on them — about Obamacare, the economy, women’s and seniors’ issues.” Sound advice.
A few weeks earlier, pollsters John and Jim McLaughlin argued that to win big in November, the GOP cannot rely on Obamacare alone, unpopular as it is. More sound advice.
In particular, there must be a growth platform, aimed especially at the middle class, which continues to suffer in the fifth year of the so-called recovery with real median income dropping by 4 percent and broad-based unemployment measured at roughly 12.5 percent. Believe it or not, a new Wall Street Journal poll shows that a large majority of Americans still think we’re in a recession.
So the challenge for the GOP is to drill home the old Ronald Reagan point that Republicans can increase take-home pay or after-tax income. That doesn’t mean forgetting the Obamacare disaster, which, as many predicted, is falling of its own weight. The individual mandate is now dead. But it does mean the GOP must emphasize economic growth.
Fortunately, many of the party’s top thinkers are already hammering away on the growth theme.
In Joint Economic Committee hearings this past week, Republican chairman Kevin Brady talked about the “growth gap,” which describes the difference between the Obama recovery and other average recoveries of the past 50 years. America is missing 5.6 million private-sector jobs, reported Brady, and $1.3 trillion in real GDP from the economy.
Delivering the Republican party’s weekly radio remarks last week, Sen. Rob Portman of Ohio reminded us that 11 million Americans have become so discouraged they’ve given up looking for work altogether, and that while poverty rates have gone up, the average family is now bringing home $4,000 less than they did just five years ago.
And in an interview with Sen. Marco Rubio this past week, I heard a number of strong growth ideas. For instance, building a national infrastructure network of interstate pipelines — like Keystone — to expedite the boom in oil and natural-gas shale development. This building can include rapid permitting for liquid natural gas projects. As Rep. Paul Ryan noted in another interview, the energy play for making and exporting LNG would remove Vladimir Putin’s energy death grip on Ukraine and the rest of Europe.
On corporate tax reform, Rubio wants the immediate expensing of any business investment, as well as an end to the double tax on American corporate profits made overseas. He also proposes greater tax relief for families with children and a refundable credit to offset payroll-tax liabilities.
Of course, Paul Ryan is a longtime tax reformer. And he notes that even the flawed tax-reform plan from Rep. Dave Camp was scored by the Joint Tax Committee as adding $1,300 in annual take-home pay for individual families, 20 percent more in economic growth and 1.8 million new jobs.
Ryan also has been criticizing the 50-year War on Poverty, where perverse incentives have “isolated the poor from the rest of America in so many ways.” According to Ryan, we now have “intergenerational poverty, and people are trapped in poverty.”
Ryan argues that government programs have created huge barriers to work. For those trying to get out of poverty, high marginal tax rates can run upwards of 80 to 100 percent. Such is the case with Obamacare, where the CBO has estimated an equivalent loss of 2.5 million jobs. It’s the same for other social programs, where those who try to climb the ladder of success quickly lose the government benefits and may be pushed into a higher tax bracket.
This all has to be changed.
Bizarrely, Ryan’s courageous analysis and proposals to solve inner-city poverty have been labeled “racist” by a number of left-wing bloggers and writers. This is nuts. The Left keeps throwing money at poverty that keeps getting worse. But if a Republican tries to solve the problem with a new incentive structure, the Left pulls out the race card.
Putting that stupidity aside, congressional Republicans such as Ryan, Rubio, Portman, Mike Lee, Ron Johnson, Eric Cantor and many others are working on growth plans to stop the economic stagnation, pessimism and defeatism of the Obama administration.
Let’s reward success, not punish it. As Ryan put it to me, “Here’s a vibrant agenda to create jobs, to increase take-home pay, to restart upward mobility.” As Rubio put it, pro-growth economic reforms will bring us into “a new American century.”
If Republicans stay on this reform track, they will win big in November.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
There’s a new cynical perception among international investors that Brazil is becoming Argentina, and Argentina is becoming Venezuela.
But these investors are starting to boycott all the so-called emerging markets, since nearly all of them are moving to the left, abandoning free-market principles, reverting to the bad old days of higher spending and taxing, inflating the money supply, accumulating large trade deficits and letting their currencies go to hell in a hand basket.
In other words, the emerging-market investment paradigm, or the BRIC model, may be over.
The U.S. stock market recently sold off nearly 500 points. Much of the blame has been placed on the collapse of the emerging-market currencies. Correct. The emerging-market tail was wagging the U.S. stock market dog.
We all know the Fed is playing a role in this as it tapers its bond purchases and injects less new cash into the economy. In recent years, some of that Fed-created excess liquidity has gone into emerging-market investments. But now, as the Fed begins to wind down, it’s as if the tide is going out to sea and revealing all the countries that left their bathing suits behind.
In other words, the left turn of many emerging-market nations is now naked for all to see. High inflation, crashing currencies, trade protectionism and economic redistribution are not the policies that grew these economies over the years and attracted investment. (South Korea, by the way, is a notable exception.)
You can go down the list. Argentina is on the verge of collapse under the left-wing populism of the Kirchner regime. Travelling leftward from Lula to Rousseff, Brazil has built a huge current-account deficit while pulling back on free trade. In India, free-market policies have stalled, and if the Gandhis return to power, so will their socialist approach. And for various political and cultural reasons, the Erdogan government in Turkey has been moving hard to the left, all while the Turkish economy deteriorates. Turkey’s central bank may defend the lira with higher interest rates, but that tightening will worsen the economy and the political situation.
China, it’s important to note, has a different problem than these other emerging markets. The Peoples Bank of China is cutting back on liquidity and credit in the so-called shadow banking system. And while the Chinese economy is not plunging into recession, its growth has dropped from 12 to 7 percent. China’s slowdown remains a threat to the U.S. as well as the other emerging markets.
Fortunately, Europe’s economy is beginning to look better around the edges. So is Japan’s, following that nation’s massive monetary pump priming. And while some may disagree, the U.S. economy looks to be getting better, despite tax hikes, Obamacare and new regulations.
But the biggest challenge of our time is not income inequality or taxing the rich. It’s economic growth for the long run. Looking globally, the challenge is maintaining the liberal economic order, with free markets and free trade at the center.
But now we’re seeing developing countries such as India, Brazil, Argentina and Turkey move away from free markets and free trade, and from the very principles that attracted capital, ignited their growth and stabilized their currencies.
In the last couple of decades, hundreds of millions of the ultra-poor were lifted into the middle class as developing nations around the world moved toward free-market capitalism. But right now I must warn investors: Stay out of the emerging markets. They’re going the wrong way.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
Growth, growth, growth is the new mantra of the venerable Business Roundtable, whose member companies generate annual revenues of more than $7 trillion while employing 16 million workers.
In past years, the BRT has put out lengthy pamphlets proposing intricate solutions for budgets, entitlements, the environment, regulations, health care and more. But this year, the BRT has gone back to basic economic blocking and tackling by bluntly saying, “If we want to control the deficit, preserve key entitlement programs, educate our children and offer upward economic mobility for everyone, we have to get our economy growing faster.”
Sounds like JFK. Or Ronald Reagan. Or Jack Kemp. A rising tide lifts all boats.
This was spelled out in a Wall Street Journal op-ed by Randall Stephenson, chairman and CEO of AT&T and the new head of the Business Roundtable.
When I interviewed Stephenson this past week, he talked about the need for fiscal stability, tax reform, expanded trade and immigration reform. But he zeroed in on this key point: “And make no mistake, economic growth doesn’t happen absent private investment. … Where there is investment — a new factory or distribution facility being built, a new store about to open, new software being installed — that is where new jobs are created.”
Stephenson says that in today’s recovery — the slowest in the modern era going back to 1947 — private capital investment has lagged badly. Not coincidentally, so has the jobs situation, with 92 million dropping out of the workforce altogether. A labor-participation rate of 62.8 percent and an employment-to-population rate of 58 percent are historic lows indicative of the anemic jobs recovery.
And I might add, with all these people not working, it’s not unfair to suggest an unprecedented demoralization inside the U.S. economy.
Sure, you can find great exceptions to this. There’s the energy boom, the rise in social media and advances in biotechnology. But the overall jobs picture is bleak. And that has a lot to do with the absence of private capital investment. In fact, long-term capital investment is probably the single-most powerful jobs creator. And these days, we’re not getting much of it. This investment cycle is the worst since World War II.
Stephenson is pleased that the Murray-Ryan budget deal will avoid a government shutdown, thereby offering some fiscal predictability. But what he and the Business Roundtable are aiming at is the total reform of the American business tax structure, where marginal rates are the highest among developed countries. He also emphasizes the need to remove barriers to bringing overseas earnings back home.
Stephenson cites a study that shows a 1-percentage-point decrease in the average corporate tax rate would raise real U.S. GDP by about 0.5 percent within one year. And he concludes that “Any serious agenda for economic growth must begin with reforming taxes for all businesses — large and small.”
And somebody should look at Boston University professor Laurence Kotlikoff’s proposal to abolish the corporate tax altogether. According to his model, while overall growth and investment would surge, higher wages would be the biggest beneficiary.
Trouble is, as I pointed out to Stephenson, President Obama is talking about inequality and income redistribution, not growth.
Instead of unleashing entrepreneurship, Obama harps on raising the minimum wage and extending unemployment assistance. Of course, increased investment that doubles the rate of job creation would make minimum-wage and unemployment-benefit discussions unnecessary.
Obama also would penalize corporations that hold profits overseas, rather than lower penalties so this money would come home for private investment.
In fact, most of the Democratic Party has embarked on a path to punish success, not reward it, to enlarge the reach of government in business, rather than incentivize entrepreneurship. I call this the Sandinista wing of the Democratic Party. It’s named after New York City mayor Bill de Blasio, who spent a goodly amount of time in Nicaragua and Cuba and is in full-fledged attack mode to punish successful earners and businesses by raising taxes of “fairness.”
Fairness is not opportunity. But tell that to Massachusetts senator Elizabeth Warren, who also is arguing for punishments on business and banking. De Blasio and Warren are spewing forth the socialist doctrine of equality of results, rather than the capitalist model of equality of opportunity. They want income leveling and redistribution — the opposite of growth.
Unfortunately, President Obama appears to have caught the Sandinista disease. And the Business Roundtable and the whole American business community will have a heck of a time turning him around.
But then again, that’s what elections are for. And that’s why we’re going to see big changes come November.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
One huge political question surrounds the catastrophic launch of Obamacare: Will the administration double-talk, cancelled insurance contracts for millions, terminated doctor-patient relationships, sticker shock from higher premiums and deductibility, and damage to job hiring and economic growth get the GOP off the shutdown hook for the 2014 midterm elections?
That is the question. Donald Rumsfeld would call it a known unknown. And right now nobody knows the answer.
Judging from the speech Obama gave following the deal to end the government shutdown, Republicans better get wise to the president’s next fiscal gambit when the three-month stop-gap budget and debt measures come due. As was the case with his hard-line defense of Obamacare, the president likely will be inflexible on ending sequestration budget caps, pushing for massive tax hikes and permitting only the most inconsequential entitlement reforms.
Obama is interested in busting the GOP in 2014. He’s not interested in true budget restraint or other economic-growth measures.
Never before has an American president threatened and risked the U.S. economy and financial markets the way Barack Obama has in recent days. For his own narrow political ends, Obama and his minions have actually accused the Republican party of deliberately provoking a Treasury debt default because they don’t agree with the Obama position on the continuing budget resolution and the debt ceiling.
“As reckless as a government shutdown is … an economic shutdown that results from default would be dramatically worse,” Obama said on Thursday. Clearly targeting Republicans, he said a default would be “the height of irresponsibility.”
The defeat of Senator Ted Cruz’s defunding strategy may not be the end of the fight to overturn Obamacare. In some sense, for free-market conservatives who want consumer choice and private-sector competition, this whole debate is about good versus evil. It’s a point that the brave and courageous Cruz grasps all too well. If Obamacare becomes permanent, it will crowd out the private health-care sector, including insurers and providers, and over time will create a single-payer, government-statist health-care sector.
Stopping this will be hard. But Senator Joe Manchin, Democrat from West Virginia, has given conservatives a ray of hope. Manchin is prepared to vote for a one-year delay of the individual mandate, the very heart of Obamacare. That means the GOP would need only four more votes to get that delay. Maybe red-state Democratic senators like Mary Landrieu (Louisiana), Mark Begich (Alaska), Kay Hagan (North Carolina), and Mark Pryor (Arkansas) will join 46 Republicans and vote for delay.
One of the biggest mistakes President Obama is making in the current debate over the threat of a government shutdown and the failure to raise the debt ceiling is his repeated and stubborn refusal to negotiate . In speech after speech, Obama crusades against negotiation. Has anyone ever seen anything like this? He’s the president. Supposedly, he’s the chief executive. But Obama doesn’t want to dirty his hands by talking to Republican congressional leaders.
Now, this is an odd paradigm given the fact that the president and his lieutenants are willing to negotiate with Russia’s Vladimir Putin, Syria’s Bashar al-Assad, and most recently, Iranian President Hassan Rouhani. They are a motley crew at best and a bunch of dictatorial mass-killing thugs in truth.
When Democratic Sen. Jon Tester of Montana announced last Friday that he would vote against Larry Summers’ putative candidacy for Fed chairman if it came before the Senate Banking Committee, he put a dagger in Summers’ Fed career before it even started. Tester would have made the fourth Democratic nay vote in the committee, and it is highly unlikely that Republicans would have taken up the slack to push through a Summers nomination.
So over the weekend, Summers wisely withdrew from the horserace, telling President Obama that the confirmation process would be too political and acrimonious.
Some Democrats blame Summers for financial deregulation during the Clinton-Rubin 1990s. Other Democrats simply want Janet Yellen to be the first female Fed chair. And Republicans blame Summers for authoring the $1 trillion Obama stimulus-spending plan that piled on new debt without generating a real economic recovery. Read Full Article
When it comes to Fed policy, one of the hottest topics on Wall Street is the next Fed chair. Who will replace Ben Bernanke? And believe it or not, Timothy Geithner’s name may be resurfacing. Is it possible that the former treasury secretary will come to the rescue of a leaderless and hopelessly divided central bank that has no real clue where it’s going or how fast it should get there?
Wait a second … Geithner? Did someone say Geithner? We thought he retired from government to go home to New York.
After delivering a number of “economic growth” speeches this summer, President Obama has failed to inspire any confidence, falling all the way back to square one in a recent Gallup poll. Actually, make that less than square one. Gallup reported that Obama’s approval rating on the economy has sunk to 35 percent in August, from 42 percent in early June.
The Federal Reserve made news this past week in two separate events. The first came with the Fed’s policy meeting on Wednesday, when the central bank gave no hint that it would taper or slow its quantitative easing (QE) bond purchases anytime soon. Wall Street believes the Fed will taper in September. My thought is that tapering is likely to come in December, or perhaps not until the new year. (More on that logic in a moment.)
The other big Fed event occurred when President Obama gave a strong defense of his former top economic advisor, Larry Summers. In front of a full caucus of House Democrats, Obama offered a full-throated rebuttal to the attacks of left-wing and feminist groups who have been coalescing around current Fed Vice Chair Janet Yellen. Obama told the Democrats “not to believe everything you read in The Huffington Post.”
With Detroit filing for Chapter 9 bankruptcy, everybody knows major root-canal cutbacks are coming. Cutbacks of out-of-control government spending, pensions and health benefits. Major cutbacks. We know that.
We also know that the downfall of Detroit is again proof positive that the public-union collective-bargaining model has utterly failed. Unions just loot the benefit lockbox at taxpayer expense. That was the message of Gov. Scott Walker’s victorious crusade in Wisconsin. If any good comes out of the Detroit debacle, it will be the spread of that message across the country.
No matter how many monetary officials try to sugarcoat it with damage control, the fact remains that the Ben Bernanke Fed wants to end its quantitative-easing bond-buying operations over the next year. That was Bernanke’s statement at his last press conference, and I’ve seen nothing to contradict it.
As everyone knows, stocks and bonds collapsed right after Bernanke let the cat out of the bag. Fortunately, markets have stabilized since then. But my hunch is that unless the economy really falls back into a quasi-recession, the Fed is going to go ahead and end its bond purchases.
In the aftermath of Ben Bernanke’s announced timetable for ending Fed bond purchases, long-term interest rates have jumped up, while stock prices have cratered down. As I wrote yesterday, I think the Bernanke plan is premature — especially in a 2 percent economy with falling inflation and inflation expectations.
But just to get a little wonky on the interest-rate story, it’s noteworthy that 10-year Treasury notes have moved up about 70 basis points year to date. Currently they’re around 2.50 percent.
Without intending to — and perhaps without even realizing it — the normally cautious Fed head Ben Bernanke may have launched a major tightening policy during his news conference on Wednesday. The de facto policy shift immediately sparked a rout on Wall Street, with stock, bond and gold prices all plunging. And it’s going to shake up confidence even more, perhaps even slowing the already anemic recovery.
Bernanke has stumbled into a major policy mistake.
When President Richard Nixon collided with the Watergate scandal, he was a very unpopular man. The nation at the time was suffering one of the worst recessions in history and one of the highest inflation rates, too. So Watergate sunk Dick Nixon, but for good measure, the economy sunk him even more.
Roughly 25 years later, Bill Clinton was impeached because he lied about his affair with Monica Lewinsky. But despite his personal transgressions, he never really lost his popularity. Why? The economy was roaring.
Apart from criminal prosecution, the best way to strip the power of politics and corruption from the IRS is to initiate broad-based, pro-growth tax reform and simplification. It’s the complexity of the tax code that nurtures the corruptness of the IRS.
There’s a buzz in Washington about this possibility, where both Democrats and Republicans are interested in reform. We need a simpler and flatter tax code. We need to get rid of the crony-capitalist insider deductions and exemptions, which have given the IRS so much power. These deductions and exemptions are precisely what nurtured the political corruption that led to a major scandal.
When you get right down to it, the political targeting and stalling of tax-exempt applications by the IRS was an effort to defund the tea party. Rick Santelli, one of the tea party founders and my CNBC colleague, was the first to make this point. I’ve taken it a step further: The IRS was taking the tea party out of play for the 2012 election, as it looked to avoid a repeat of 2010 and another tea party landslide.
There are a lot of numbers out there. Some say tea party applications for tax-exempt status averaged 27 months for approval, while applications from liberal groups averaged nine. In one extreme case, according to The Washington Post, the IRS granted the Barack H. Obama Foundation tax-exempt status in a speedy one-month timeframe. Yet some conservative groups waited up to three years, and some still haven’t received approval.
At the end of the day, the battle over immigration reform is not about dollars and cents. It’s about the soul of a nation. President Reagan reminded us that America must remain a “beacon” and a “shining city on a hill” for immigrants who renew our great country with their energy, while adding to economic growth and prosperity.
And here’s a quote from Jack Kemp: “Americans and immigrants share the same value of work, family and opportunity. There is no reason to fear the newcomers arriving on our shores today. If anything, they will energize what is best about our country.”
In the last two days, gold has plunged so deep that it’s being called the worst drop — at least in percentage terms — in 30 years. That brings us back to the early Ronald Reagan period, when falling gold was regarded as a good thing.
Back then, lower gold showed inflation coming down after the horrible 1970s. It also showed confidence in the economy recovering and greater respect for the dollar. Over the next two decades, in the ’80s and ’90s, gold basically dropped in round numbers from $800 an ounce all the way to $250. Stocks soared. So did jobs and the economy. It was one hell of a good period.
No matter how you slice the Obama budget pie, the inescapable fact is that the president wants to get rid of the roughly $1 trillion budget-cutting sequester and substitute in a $1 trillion-plus tax hike. In other words, more spending, more taxing. Growth-busting. The GOP should just say no.
And let me provide some counsel to my Republican friends in Washington, in particular in the House. Balanced budgets don’t create growth. This mantra is wrong. It’s growth that creates balanced budgets.
Many profound and detailed admiration pieces will be written about the late Margaret Thatcher, and they’ll be much deeper than this one. But I want to get on record with my own esteem for Thatcher, whose character, philosophy and achievements made her one of Britain’s greatest prime ministers.
Way back in the early 1990s, at a National Review conference on the Eastern Shore of Maryland, I had the great honor to serve on an economics panel that Thatcher moderated. (Paul Craig Roberts was also on that panel, although I can’t remember the name of the third panelist.) The topic was free markets and freedom, areas in which Margaret Thatcher made huge contributions, so I had a lot to live up to. And how did it go? Well, following the discussion, I got to sit next to Thatcher during the luncheon. And she told me, “You know, Kudlow, you did rather well in that talk.” Naturally, I was thrilled.
Apropos of my column of a week ago — “Has Bernanke Gotten the Story Right?” — this week’s paltry gross domestic product revision again backs up the actions of the Federal Reserve chairman and his market-monetarist supporters.
Real GDP was a miniscule 0.4 percent at an annual rate for last year’s fourth quarter, up from an earlier estimate of 0.1 percent. Perhaps more to the point, the year-on-year GDP change is only 1.7 percent, less than the 2 percent average growth of the Obama recovery, which is still the weakest in modern times going back to 1947.
The most important point in Ben Bernanke’s Wednesday press conference was the announcement that the Fed will adjust the amount of monthly bond purchases according to economic conditions. In other words, an improving economy with stronger payrolls and lower unemployment could lead to a decline in Fed bond buying, from $85 billion a month to something gradually lower, so long as the economy keeps looking better.
It won’t happen all at once. The Fed is not convinced that the current economic upturn is truly sustainable. But Bernanke is implying that the Fed may become less easy in the second half of this year, perhaps ending QE in 2014.
You might not know it from the acrimonious political debate on cable and broadcast TV, or on talk radio, or on websites and blogs. But here’s a counterintuitive observation: Amidst all the negativism out there, I believe optimism is in the air.
President Obama may be backing away from his doomsday spending-cut predictions as the sequester goes into place. But the new party line is that while there will be no impact in the first few days, there’ll be a slow, downward slump after that.
What, are we to believe that lower spending and smaller government damage the economy? Doesn’t that run counter to virtually every reasonably objective study in recent years — including ones from a number of U.S. academics and the Organization for Economic Cooperation and Development in Europe — that describe how countries with lower government spending grow more, and how countries with higher government spending grow less?
The Obama administration is whipping up hysteria over the sequester budget cuts and their impact on the economy, the military, first providers, and so forth and so on. Armageddon. But if you climb into the Congressional Budget Office numbers for 2013, you see a much lighter and easier picture than all the worst-case scenarios being conjured up by the administration.
For example, the $85 billion so-called spending cut is actually budget authority, not budget outlays. According to the CBO, budget outlays will come down by $44 billion, or one quarter of 1 percent of gross domestic product (GDP is $15.8 trillion). What’s more, that $44 billion outlay reduction is only 1.25 percent of the $3.6 trillion government budget.
All this chatter about a so-called global currency war is utter nonsense. All that is happening is the Japanese are wisely taking steps to increase liquidity and depreciate their vastly overpriced yen. They are doing this in order to avoid deeper and deeper deflation. That deflation will sink the Japanese economy for years to come if remedial actions are not taken.
Among all the big economies, none needs quantitative easing more than Japan’s. All the Japanese have done so far is make cheap loans to banks, but with no concerted QE. But QE is coming this spring, when Prime Minster Abe appoints a new Bank of Japan head man.
Today’s report of a 0.1 percent gross domestic product decline for the fourth quarter came as a surprise to most forecasters. But it actually masks considerable strength in the private economy. Namely, housing investment in the fourth quarter jumped 15.3 percent annually, business equipment and software spiked 12.4 percent, and real private final sales rose 2.6 percent. All in all, the domestic private sector of the economy increased 3.4 percent annually — a very respectable gain.
And here’s one for the record books: Working ahead of year-end tax hikes, individuals shifted so much money to the fourth quarter at the 35 percent top rate that personal income grew by 7.9 percent annually — a huge number. And there’s more: In order to beat the taxman, dividend income rose 85.2 percent annually. You think tax incentives don’t matter? Guess again.