The U.S. Economy
There seems to be quite some debate about the state of the US economy. Some, like President Bush, believe that the US economy is “strong and vibrant”. Others, like the citizens quoted in this AP article, say that they are struggling, like never before, to make ends meet.
Nancy Pelosi (perhaps naturally) agrees with those citizens:
Times are “very good for the rich and very, very bad for the poor” who “can’t afford to live,” laments Larry Mitchell, 43, a now-and-then merchant peddling his wares recently in a submarine sandwich shop parking lot. He says the middle class is “having a hard time.”
[...]
“President Bush and the Republicans are out of touch with Americans who are living paycheck to paycheck and are struggling to make ends meet,” House Minority Leader Nancy Pelosi, D-Calif., counters.Her rank-and-file portrays an economy under Republicans that leaves behind the poor and hinders the middle class. Democrats also complain about a soaring federal deficit and Bush’s tax cuts “for the wealthy” during wartime.
[...]
“Everything from a loaf of bread to a pair of shoes,” seems to cost more, said Ronald Barrett, 70, a Democrat supervising a group doing community service on Scottsburg’s quaint town square in Indiana.At a nearby diner, waitress Jeanine Gordon, 32, who makes the minimum wage, mused about her latest trouble — her van has been in the shop for a week because she and her husband can’t afford to fix it.
“This is the least I’ve ever made in my entire life,” the Republican and mother of three said. “The gas prices went up and the tips went down.”
On the other hand, the AP uses undeniable positive STATS. Perhaps the economy as a whole has gotten ‘better’, but a lot of individual’s lives have not improved, or even gotten worse? (speculating here)
Ed Morrissey does not agree with the tenure of before mentioned AP article.
My problem is that I do not live in the U.S. so that I cannot give a fair report about the life of the average American. All I can do is look at the STATS (which never tell the whole story). These STATS seem to be quite positive.
Thoughts anyone?
60 Responses to “The U.S. Economy”
Andrew,
This one, and indeed the entire argument that the tax cuts are hurting the budget completely fails me. How where right now the tax receipts for local, state, federal are at their highest level after tax cuts were given?
The benefits here, as in Reagan’s years seems to closely follow the Laffer Curve
interested,
The laffer curve is particularly useless — I don’t know any reputable economists that put any faith in the general concept, as taxation is far too complex. We are at least as likely to be on the positive slope side of the curve as we are on the negative for any particular tax.
In any case, long term deficit funding of government programs is equivalent to deferred increases in taxation. There are reasonable cases to be made that deficit spending for short term considerations are very useful, as in war or emergency. However, it is particularly irresponsible to fund long term benefit programs, medicare part d for example, with deficit spending. Debt growth is far exceeding even the most optimistic potential tax revenue increases from growth triggered by tax cuts.
If you want a program, fund it. If you don’t want to pay, don’t have the program. Funding it and borrowing to pay for it is by far the most irresponsible option.
http://www.cbpp.org/3-28-01wel.htm
The District has decided to use the flexibility provided in the federal welfare law to continue providing cash assistance to families that reach the time limits. While the federal welfare law includes a basic 60-month limit on the receipt of federal assistance, it also allows — and even anticipates — that at least some families will receive assistance beyond 60 months. Many other states have used this flexibility, resulting in a wide variety of policies to ensure that time limits do not result in severe financial hardships. Some states — Michigan, New York, and Vermont — effectively have no time limit.
Many states exempt certain categories of families from time limits. For example, 26 states exempt families from the time limit when the caretaker is disabled (as defined by the state), 22 states exempt families in which the caretaker is caring for a household member with a disability, 18 states exempt families experiencing domestic violence, and 17 states exempt families with an elderly caretaker. Exemptions can cover a wide share of a state’s welfare caseload. In Massachusetts, for example, roughly 50 percent of welfare recipients were exempted from the time limit when the state implemented its TANF program
Most states provide extensions to at least some categories of families reaching time limits. For example, 20 states provide extensions to families in which the adult has made a good faith effort to find employment but remains unemployed — or underemployed — when the family reaches a time limit
That is just a small example of the delays , exemptions , and exceptions made to the law .
http://www.naswma.org/content.asp?
Mass social workers determined to continue welfare .
WELFARE •
An Act Providing Assistance to Welfare Recipients in Overcoming Barriers to Employment, H.2713: To establish a collaborative system under the Department of Transitional Assistance and the Department of Public Health for early assessment of recipients’ barriers to employment and referral to services; provide extensions to enable recipients to finish education and training programs; and fund local workforce development agencies to provide integrated education and training programs
So you doub that welfare cases are transfering to federal programs such as social security ?
The second program, SSI, was launched in 1974 to help disabled adults and children who hadn’t paid into Social Security. SSI benefits are drawn directly from the federal budget and don’t involve the Social Security trust funds.
This from 1998
Today, total cash benefits of SSDI and SSI run a staggering $75 billion – a figure that doesn’t include billions more spent on administration and related spending by state governments. In recent years, the cost of SSI alone has mushroomed, surpassing the cost of the old AFDC welfare program by several billion dollars.
http://www.reason.com/links/links082206.shtml
As Douglas Besherov of the American Enterprise Institute pointed out last week in The New York Times, some of the families booted from TANF simply move to different sources of assistance: “food stamps (an average of more than $2,500), the Women, Infants and Children program (about $1,800 for infants and new mothers), Supplemental Security Income (an average of over $6,500), or housing aid (an average of $6,000). Their children also qualify for Medicaid. In reality, these families are still on welfare because they are still receiving benefits and not working—call it ‘welfare lite.’” It’s not clear what makes this arrangement “lite,” given that all five forms of aid have seen their budgets increase since Bush took office.
In March, USA Today examined 25 programs, from Medicaid to the Earned Income Tax Credit. In nearly all of them, enrollment grew. Congress expanded eligibility for several, usually with the proviso that the recipients also work. But for the most part, this growth was a matter of the existing programs stretching to take on more clients as they fell below the poverty line. That doesn’t necessarily constitute an increase in the number of people getting benefits: USA Today calculated that overall enrollment increased 17 percent from 2000 to 2005—”the biggest five-year increase in 40 years”—but that double-counts people who joined more than one program. But it certainly isn’t the unambiguous contraction you see if you look at TANF alone.
I think you are making a meaningless comparison between the growth of the 90′s and this current one.Durring the 90′s you had low unemployment combined with stock prices that were highly inflated. There are a myriad of factors which have a positive or negative effect on the economy. They don’t simply exist in a vacume.With logic like yours you can dismiss even the most basic economic concepts by a simple anomaly.
Uhh Andrew
I havn’t found any facts to support your claim, the ones I have read up on thought the idea was with merit (the idea itself was based off of John Keynes). even my Economics professors thought the idea just hadn’t had enough time in practice before being yanked.
And indeed, once the tax credits happened, the level of tax receipts increased.
The basis of the tax credits makes sense – and so does Laffer’s curve, to simply say you never know which side of the curve you are on is not paying attention to all of the elements.
Also you have a highly fundimantal flaw in your theory -
much like the entire flaw of communism – the human element. There is absolutely zero indication that given a level of tax receipts – the government will not spend it.
The real problem is the level of spending is far outpacing what the tax cut increases have brought in – raising taxes will not solve the problem. As anyone knows, the fastest way to reduce debt is to both increase income and reduce expenditures – the increasing of income has already happened.
Indeed if you increase taxes than tax receipts will decrease and make a bad situation worse.
Elrod (mail):
This is important not just because housing prices have dropped, but because so many Americans took out home equity loan during the low-interest rate early 2000s. Now those loans are becoming adjustable (after fixed for 3 years or so) and payments are going up. This only adds to the anxiety
For the walking dead perhaps . Unless you are a first time home buyer you have equity from your previous home or houses .A home purchase should be considered in the long term not like a day trade .In many markets the purchase still beats renting .
Elrod , how many of those people are considering the fact that much of the increased energy and health care costs are offset by their Mutual Fund performance ?
I am always dubious of these polls. Besides, if the perception of the American public is more important than reality there is nothing a a drop of a few more cents at the pump can’t handle.
Michael,
You are probably right about the gas prices. But I think you’re wrong about home equity loans. A lot of people took out HE loans simply because their increased home value and low interest rates made it possible. It was a fad, though certainly not as reckless as day trading.
And as for mutual fund performance, well, you’re making a pretty big assumption that most Americans have mutual funds, and most of those funds have done well. I know mine hasn’t done so well and it’s an index fund. But I guess I’m financially ignorant.
Wow, has this discussion taken off. I got left behind.
I’ll just hit on one thing. C Stanley, you asked about the “fair tax” proposal, which as I have read is essentially a flat national sales tax with monthly rebates pegged to a baseline spending amount. As I understand it, the monthly rebate would ensure that someone simply living on the necessities would get as much through the rebate as they paid in taxes. As people spend more, their taxes grow beyond the rebate.
To me, this proposal seems very promising. Some time ago, I did quite a bit of research on it. It seems to do a good job of not overburdening the poor with something they can not afford while greatly streamlining the taxation process, ensuring the rich can’t jump through a bunch of loopholes (although they still can avoid the tax by doing things like going on overseas shopping trips), and encouraging saving because you are only taxed on what you spend, not every dollar you make.
Ryan,
That’s pretty much my take on it too. I guess my main concern is just the law of unforeseen consequences. I think they’ve done a thorough analysis to try to address most consequences, but with such a major overhaul I’m concerned that there may be things that are overlooked, especially since so many economic decisions are based on current tax law.
And of course the other issue is, not only is this desirable but is it possible for the bill to pass? It’s pretty hard to overcome the inertia of a bureacracy like the IRS.
C Stanley, exactly on both points. The point I raised of the rich simply doing more shopping overseas is something I haven’t seen addressed. This would essentially be a tax shelter available to them that would not be available to others who don’t live on the Canadian or Mexican border because we can’t afford a plane ticket to fund our multi-million dollar shopping sprees. I’m sure there would be many other serious ripple effects.
If nothing else, here’s a thought. How much do politicians in charge want to encourage us not to spend? Consumer spending is the backbone of our economy. I keep seeing quotes that it’s 2/3 of our economy. If people even cut back spending by 10%, that could send our economy into a tailspin. Does any politician in office, the ones who would be blamed for such a faltering economy, want to take such a political risk?
I almost asked you about the question of the real world possibility of such an overhaul. Not just overcoming the IRS but also building the political inertia to make such a thing happen. This can’t just happen out of the blue and most people, without deep research of which most people won’t bother to do, are downright scared of such a proposal. Even some who have researched the proposal still have reservations and for good reason. After all, no system is perfect.
Data and fact are not the same thing. Data is subject to the vagaries of how said data was gathered and is thus not “true” in any objective sense. Statistics is the interpretation of data, and even if the interpretation could be made perfectly, the errors inherent in the initial data make the interpretations inherently errored as well (thus the error percentages for every poll, for example).
Data can be wrong in dozens of ways both gross and subtle, and so the data may be as suspect as the statistical interpretation of said data. The best we can do is question the data when we don’t think it represents fact, expose errors and falsifications when they appear, and always seek to better represent reality with our data. This is true with all data, but especially true with “social-science” data given the fundamental complexity of gathering the data in the first place.
To paraphrase Obi Wan Kenobi, “You’ll find that many of the data we cling to depend greatly on our own point of view.”