Marko: September 24, 2016
Two Candidates, One Shot at Turning the Economy and the Nation
By Scott S. Powell
When thinking about critical issues defining this November’s presidential election, most Americans identify foreign policy concerns, growing Islamist terror threats, and Supreme Court appointments as being the high stakes issues. And while most consider jobs and the economy equally important, very few realize just how precarious the U.S. financial condition really is.
In a recent campaign speech, Republican presidential nominee Donald Trump stated that Fed chief Janet Yellen should be “ashamed of herself for what she was doing to Americans” and for creating a “false stock market.” As has so often been the case, Trump’s direct manner of speaking brought on immediate criticism by the establishment and its surrogates in the media. But Trump was factually correct about his charge that the economy has been distorted by the Fed’s Zero Interest Rate Policy (ZIRP), which has penalized savers, encouraged debt expansion, and driven the stock market to an artificially high level. In addition to ZIRP, the Fed’s money printing and bond-buying programs carried out during the last seven and a half years have served to bail out and mask President Obama’s failed economic policies.
A zero interest rate policy not only can’t promote wealth creation, it impedes it by distorting the pricing of credit and creating uncertainty that dampens economic activity. The result has been the somewhat arbitrary and unnatural shifting around of wealth, penalizing savers and rewarding debtors -- such as companies who borrow to fund stock buybacks to raise the per share earnings and the stock price, rather than borrowing to finance business expansion and new jobs.
The world’s biggest borrower is the U.S. government, which on Obama’s watch has borrowed to finance deficits averaging $913 billion annually. To grasp the extent of America’s present dire financial condition, just consider that during all the years leading up to 2008, the highest single year U.S. deficit was $459 billion, about half of the annual average deficit during the nearly eight years of Obama rule. Among G20 countries, the U.S. debt to GDP is now 104.5% -- the third worst, exceeded only by Italy and Japan. By the time he leaves office, Obama will have presided over a government that added just about as much debt in eight years as was accumulated in the first 225 years of U.S. history.
The shame of the Federal Reserve goes far beyond artificially elevating the stock market, bailing out a Democratic president presiding over the worst economic recovery since the Great Depression, and paving the way for his successor, Hillary Clinton, to get elected. It goes to the heart of what ails the country: the inability of the governing elite class to address honestly the facts about economic reality, and in particular to explain the nation’s insolvency trajectory and consequential collapse -- a catastrophe that would dwarf the previous financial crisis of 2008 and all prior recessions and depressions.
Neither governments nor central banks create or add to national wealth because they don’t produce much of anything of substance that people willingly pay for -- with the exception of a very few categories, such as national defense, which drives military contractor output. Almost all the wealth, encapsulated in the nearly $4 trillion annual national budget administered by the U.S. federal government is obtained from taxing productive people and private sector companies or by issuing debt and borrowing money.
Since U.S. GDP has historically grown about 3.25 to 3.5 percent annually, the anemic sub-1.75 percent average annual growth during nearly eight years of Obama demonstrates the simple fact that government has been more the problem than the solution to what ails the economy.
The Patient Protection and Affordable Care Act, commonly called ObamaCare, and the Wall Street Reform and Consumer Protection Act, commonly called Dodd-Frank, were the two showcase pieces of legislation in the first Obama term (that advanced the socialization of nearly 30% of U.S. GDP manifest in the health care and financial service sectors of the economy). Both introduced enormously costly distortions to the economy, while failing to solve the problems that they purported to address. Health care costs have skyrocketed, government-run insurance exchanges have failed and many companies won’t grow their full-time employee headcount beyond 50 to avoid costs imposed by ObamaCare. Banks have consolidated, raised fees to the consumer, while the largest are bigger than ever, and certainly too big to fail.
The politically correct war against fossil fuels and pipelines to safely transport oil and gas has hurt the U.S. economy in other significant ways, both in job creation and the opportunity cost of deferred energy independence, lost exports and a diminished trade deficit.
The dramatic increases in regulation by unelected and unaccountable government bureaucrats now saddle the U.S. economy with an annual cost burden of some $2 trillion. When this regulatory cost is added to the $3.9 trillion annual government expenditures, the actual cost of the federal government in the U.S. is closer to 33% of GDP rather than the 22% figure that is generally understood. Further, when costs of state and local taxes and regulatory requirements are cranked in, it becomes even more apparent that subpar growth will likely continue and become as permanent a feature in the U.S. as it has been in Japan and Europe for the last two and a half decades. That is of course, unless dramatic changes are undertaken.
Looking under the hoods of the presidential candidates’ respective economic platforms makes it clear that Donald Trump understands what makes for job creation and economic growth. Hillary Clinton is at best a status quo, if morally challenged, tax and spend politician who lacks an appreciation of incentives for economic growth. She is also beholden to globalists and open borders advocates such as George Soros.
The key points of Clinton’s “National Infrastructure Plan” which are integral to her stated economic growth platform start with an $80 billion program of new spending and redistribution of wealth in three areas with no certainty of measurable job creation. Additionally, she calls for bailing out $35 billion in student loans annually and subsidizing states to guarantee tuition.
Clinton’s idea of growth is not about allowing markets to set prices, but rather expanding price controls, both in healthcare and throughout the economy in labor costs. Her stated intentions to continue the war against coal and raise the national minimum wage to $15/hour are but two policies that will put a lot of people out of work.
Her tax policies add new complexity and compliance costs. They are also all punitive -- such as raising estate taxes and imposing an “exit” tax on any company undertaking an “inversion” to reduce the burden of the 35% U.S. corporate tax rate -- the highest corporate tax rate in the world -- which is what drives inversions to begin with, and which Clinton leaves in place. That Clinton would maintain the least competitive corporate tax rate in the world reveals a conviction fundamentally at odds with job creation and economic growth.
Where the Clinton platform addresses regulation at all, it is about enlarging regulations, such as those pertaining to fracking and fossil fuel development, and expanding provisions in both ObamaCare and Dodd-Frank.
At best, under a Clinton presidency, the Obama path to national insolvency stays on course. At worst, and probably more likely, a Clinton presidency accelerates that trajectory for the simple reason that with heightened systemic risk from record debt accumulation, and with a growing amount of new debt being issued to service the old debt, the end game horizon approaches more rapidly. It’s a bit like making the minimum interest payments on maxed-out credit cards with money borrowed on yet another credit card. That doesn’t last very long.
In contrast, Donald Trump’s economic policy platform, would unleash dramatic new economic activity by cutting corporate taxes to 15%, and to 10% on repatriated funds earned by corporations overseas -- funds that have already been taxed by the countries in which those funds were earned.
Trump describes the cornerstone of his platform as “the biggest tax revolution since Reagan.” It focuses on tax simplification -- including the reduction of exemptions and in the number of tax brackets from 7 to 3, with rates reduced to 12, 25 and 33 percent. Trump would also eliminate the estate tax, noting that wealth in estates has already been taxed when earned, often at the highest rates. In short, Trump’s tax plans assure that more money stays in the private sector, which stimulates growth and drives new tax revenues. Trump’s tax policy advisors assert that the combination of economic growth from lower tax rate incentives and the elimination of deductions and loopholes will be revenue positive fairly quickly -- that is, bringing in more money to the federal treasury.
Just as significant as his tax policies are Trump’s positions on regulatory reform -- all of which are targeted at keeping jobs and wealth in America. He starts with repealing and replacing Obamacare. Next he sets his sites on dramatic GDP growth by lifting the restrictive regulations on all sources of American energy production.
In his recent Detroit address on domestic policy Trump pledged that he would “remove the anchor dragging us down,” by cancelling overreaching regulatory executive orders and issuing a temporary moratorium on new agency regulations. Further, all agency regulations that either do not improve public safety or needlessly kill jobs would be rescinded. Lifting even a fraction of a $2 trillion regulatory burden on the U.S. economy would catalyze significant new jobs and tax revenues.
In summary, Americans not only have to consider each candidates’ likely Supreme Court appointments, foreign policy positions, and resolve to defeat Islamist terrorism. Voters also need to understand the imperative of supporting the presidential candidate with new ideas and approaches to dramatically revitalize growth, job creation, and increase the tax base. This is the critical factor in changing the current trajectory toward insolvency and collapse.
In the home stretch leading up to November 8, candidate Trump might even go further in targeting middle and lower middle class constituencies that are not overly ideological, but may have traditionally voted Democrat. A growing number of these people are likely to be open to the “Make America Great Again” message -- after eight years of shrinking wages and job prospects.
It may turn out that the pool of commonsense people likely to vote is larger than previously assumed. It isn’t that hard, after all, to understand why voting for economic growth is far less risky than continuing the path of codependence on a profligate and disingenuous government that couldn’t bail itself or anyone else out when the next debt bubble bursts.