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Economy Grew at Just 2.1 Percent in the Second Quarter

Well, it’s not great, but it’s not a disaster.

But I will say, it seems hard to me to run the economy at much less than 3 percent with low interest rates and annual deficits in the hundreds of billions – or even a trillion – dollars.

That’s what one calls, a lot of stimulus.

Nevertheless, Barack Obama managed to do it. So far Trump’s GDP numbers have been quite good.

That, of course, will change for the president elected in 2032 who has to begin paying off his debt. Or if we suddenly incur a crisis requiring massive spending of money we don’t have.

Don’t say I didn’t warn you.

From the Washington Examiner:

The economy grew at a 2.1% annualized rate in the second quarter, the Bureau of Economic Analysis reported Thursday morning in a preliminary report on gross domestic product.

Forecasters had expected GDP growth to slow from 3.1% in the first quarter to slightly below the 2% mark. The Trump administration has promised sustained 3% annual growth.

With the growth recorded in the second quarter, the economic recovery has now hit the 10-year mark — it began in June 2009, by the National Bureau of Economic Research’s reckoning. It’s also the longest recovery in U.S. history, eclipsing the 1991-2001 recovery by one month as of July.

One negative indicator in Friday’s report is that business investment growth stalled out and turned negative for the first time in the Trump era. Republicans have aimed to boost business investment, especially through the 2017 tax cuts.

Overall, however, the report indicates that underlying growth is stronger than the headline 2.1% growth rate suggests. Consumer spending grew at a strong 4.3% rate, and overall demand appeared to be strong.

Really? Obama Has “Scratched and Clawed” for the Middle Class?

One moment of unintended – and unnoticed – levity occurred near the end of the White House briefing Tuesday, when White House Press Secretary Josh Earnest claimed that President Obama has been “a president of the United States that for the last six and a half years has scratched and clawed to protect the interests of middle-class families all across the country.”

Not sure about who or what he has scratched and clawed. Because the markings are difficult to discern.

The White House is careful to dress up its policies as “middle class economics.” Because the middle class is where the votes are. But the Obama presidency is not about the middle class.

You can agree or disagree with Obama’s methods and policies. But his chief enthusiasm has been helping the lower classes by expanding the welfare state and regulating businesses. The middle class stuff is camouflage for the real agenda.

The proof is in the pudding. Here’s the pudding.

According to Reuters:

Barack Obama enters the final two years of his presidency with a blemish on his legacy that looks impossible to erase: the decline of the middle class he has promised to rescue.

Federal Reserve survey data show families in the middle fifth of the income scale now earn less and their net worth is lower than when Obama took office.

In the six years through 2013, over the recession and recovery that have spanned Obama’s tenure, jobs have been added at the top and bottom of the wage scale, a Reuters analysis of labor statistics shows. In the middle, the economy has shed positions – whether in traditional trades like machining or electrical work, white-collar jobs in human resources, or technical ones like computer operators.

Between 2010 and 2013, as recovery took hold and stock markets soared, the average net worth of families in the top 40 percent of income earners grew. For all others average net worth shrank, declining 19 percent for the middle fifth.

These results stem from specific policies. Obama’s chief domestic initiative, Obamacare, is not a middle class program. It’s an effort to get health insurance to the lower class, including a massive expansion of Medicaid. Expanding health insurance is a good goal, but the way he has done it involves turning insurers effectively into wards of the state and raising the price and lowering the quality of healthcare for everyone else.

Among his other battle cries are raising the minimum wage and legalizing illegal immigrants. He pushed and signed legislation containing massive new regulations on the banks, wants to regulate carbon emissions by fiat, and has enlarged the government’s share of the economy while running up trillions in debt.


Meantime the WEALTHY have benefited during Obama’s tenure for the zero-interest rate Fed policies needed to keep the economy afloat in the absence of any serious presidential leadership on expanding the economy. The low rates have grandly goosed everyone’s stock portfolios and made the rich richer.

These things he scratches and claws for. Not private sector expansion and business-friendly policies that would promote middle class expansion.

And the results speak for themselves.

Obama Touts “Inclusive Capitalism”

In an interview with Ezra Klein of Vox, President Obama said traditional market forces that used to redistribute income are failing and the time for government to do it instead has arrived.

The interview, which ran today, was conducted January 23.

Touting what he referred to as inclusive capitalism, Obama made the case for what actually sounds a lot like socialism.

So part of our job is, what can government do directly through tax policy? What we’ve proposed, for example, in terms of capital gains — that would make a big difference in our capacity to give a tax break to a working mom for child care. And that’s smart policy . . .

We also still have to focus on the front end. Which is even before taxes are paid, are there ways that we can increase the bargaining power: making sure that an employee has some measurable increases in their incomes and their wealth and their security as a consequence of an economy that’s improving. And that’s where issues like labor laws make a difference. That’s where say in shareholder meetings and trying to change the culture in terms of compensation at the corporate level could make a difference. And there’s been some interesting conversations globally around issues like inclusive capitalism and how we can make it work for everybody.

Capitalism, Obama indicated, is no longer working to get enough money out of the hands of the rich and into the hands of workers:

I think that part of what’s changed is that a lot of that burden for making sure that the pie was broadly shared took place before government even got involved. If you had stronger unions, you had higher wages. If you had a corporate culture that felt a sense of place and commitment so that the CEO was in Pittsburgh or was in Detroit and felt obliged, partly because of social pressure but partly because they felt a real affinity toward the community, to re-invest in that community and to be seen as a good corporate citizen.

Today what you have is quarterly earning reports, compensation levels for CEOs that are tied directly to those quarterly earnings. You’ve got international capital that is demanding maximizing short-term profits. And so what happens is that a lot of the distributional questions that used to be handled in the marketplace through decent wages or health care or defined benefit pension plans — those things all are eliminated. And the average employee, the average worker, doesn’t feel any benefit.

Obama, singing from the traditional Leftist hymnal, said we must “make sure” that “folks at the very top are doing enough of their fair share.” He complained about the “winner-take-all aspect of this modern economy” and the need to be “investing enough in the common good.”

Because, you see, you didn’t build that. And you don’t own it either.

White House Suggests Combating Deficit with More Spending

No, it’s true. This is not one of my satire pieces. That’s what they did, in a statement released this morning, and White House Press Secretary Josh Earnest even flagged the statement for reporters traveling with President Obama in Asia so they didn’t miss it.

The news was that the Congressional Budget Office released a report stating that the deficit had come down a little bit more, to the lowest point of the Obama presidency and to a place that is just below the average for the last 50 years.

Buhhhht . . . the average for the last 50 years is pretty bad and has resulted in our current $18 trillion in debt. The estimate also doesn’t include a bunch of spending and tax cuts that routinely get “extended” by Congress, to the tune of more than $1 trillion over ten years.

And the deficit is set to start rising again in just a couple of years, to heights rivaling the levels of the last recession. And that’s all assuming we don’t have another recession.

The White House acknowledges this, and suggests a fix:

CBO’s longer-term budget and economic projections confirm the need for Congress to act to strengthen our economy for the middle class while putting our debt and deficits on a sustainable trajectory, including by making the investments that will accelerate economic growth and generate good new jobs for our workers to fill.

Investments. Get the joke? Investments are what liberals call spending. That will cure the deficit.

And so I’m headed out right now to Dairy Queen to work on my diet.

News Alert: Income Inequality is Not What You’re Being Told

You may remember that President Obama was to make the scourge of income inequality the laser focus of the remainder of his presidency. We have’t heard much about it lately, because, with the exception of golf – or winning an election – our president is not really able to maintain his focus on anything for particularly long or with much consistency.

Well it turns out Obama’s erratic attention to the matter may be warranted.

Writing in the Wall Street Journal, former Sen. Phil Gramm and Michael Solon explain a study questioning whether income inequality is really the exploding problem it’s made out to be.

Gramm, who, you might know, was an economist before he got into politics, notes that the income inequality argument is driven by “a now-famous study” by economists Thomas Piketty and Emmanuel Saez. But there are problems with their methodology:

The Piketty-Saez study looked only at pretax cash market income. It did not take into account taxes. It left out noncash compensation such as employer-provided health insurance and pension contributions. It left out Social Security payments, Medicare and Medicaid benefits, and more than 100 other means-tested government programs.

Realized capital gains were included, but not the first $500,000 from the sale of one’s home, which is tax-exempt. IRAs and 401(k)s were counted only when the money is taken out in retirement. Finally, the Piketty-Saez data are based on individual tax returns, which ignore, for any given household, the presence of multiple earners.

The new study by Economists Philip Armour and Richard V. Burkhauser of Cornell University and Jeff Larrimore of Congress’s Joint Committee on Taxation fills in the missing data.

Gramm and Solon write:

The result is dramatic. The bottom quintile of Americans experienced a 31% increase in income from 1979 to 2007 instead of a 33% decline that is found using a Piketty-Saez market-income measure alone. The income of the second quintile, often referred to as the working class, rose by 32%, not 0.7%. The income of the middle quintile, America’s middle class, increased by 37%, not 2.2%.

By omitting Social Security, Medicare and Medicaid, the Piketty-Saez study renders most older Americans poor when in reality most have above-average incomes. The exclusion of benefits like employer-provided health insurance, retirement benefits (except when actually paid out in retirement) and capital gains on homes misses much of the income and wealth of middle- and upper-middle income families.

Messrs. Piketty and Saez also did not take into consideration the effect that tax policies have on how people report their incomes. This leads to major distortions. The bipartisan tax reform of 1986 lowered the highest personal tax rate to 28% from 50%, but the top corporate-tax rate was reduced only to 34%. There was, therefore, an incentive to restructure businesses from C-Corps to subchapter S corporations, limited-liability corporations, partnerships and proprietorships, where the same income would now be taxed only once at a lower, personal rate. As businesses restructured, what had been corporate income poured into personal income-tax receipts.

So Messrs. Piketty and Saez report a 44% increase in the income earned by the top 1% in 1987 and 1988—though this change reflected how income was taxed, not how income had grown.

An equally extraordinary distortion in the data used to measure inequality (the Gini Coefficient) has been discovered by Cornell’s Mr. Burkhauser. In 1992 the Census Bureau changed the Current Population Survey to collect more in-depth data on high-income individuals. This change in survey technique alone, causing a one-time upward shift in the measured income of high-income individuals, is the source of almost 30% of the total growth of inequality in the U.S. since 1979.

What this study demonstrates is that the United States, as you may have suspected, is not just a place of opportunity for the wealthy.

As long as I have a chance to better my position, what really do I care if there is substantial income inequality? Should I be keeping track of whether my rich neighbor is driving a 2009 Porsche or a 2014 Porsche? How does it benefit me to resent the success of others?

Besides, wealthy people rarely store their income in old Maxwell House cans. They spend it or invest it. Either they are making money with their money, or someone else is.

Everyone I’ve ever worked for was wealthy. Well, until I started working for myself. Should I have resented them for giving me a job and paying my health insurance out of their pocket? Should I have wished they had less money so they could pay me less and maybe fire one of my co-workers?

Here’s a toast to the wealthy. Most of you earned it through sacrifice, hard work, and risk. May this always be a country where you will be comfortable keeping your wealth, and where others will be free to rise up the income ladder and join you.

The Redistribution Recession

There are reasons why five and a half years into the Obama presidency things are still crummy and uncertain.

As I’ve mentioned before, specific statist and redistributionist policies have kept a lid on growth. It’s not an accident that President Obama has been unable to bounce the economy out of recession like Reagan or either of the two Bushes did.

The Wall Street Journal the other day excerpted a speech by University of Chicago economics professor Casey B. Mulligan, given on receiving the Hayek Prize on June 25 from the Manhattan Institute for his book “The Redistribution Recession”.

He provides some illustrations of Obama policies that have kept the economy in neutral. Or in reverse. It’s called “help” by Democrats, and “free stuff” by conservatives, like me. Free stuff is okay when you’re in a fix, but free stuff become deleterious when you keep getting it. Or when you’re not in a fix. And that’s what’s happening to people.

Mulligan writes about Food Stamps:

Participants are no longer required to seek work and are not asked to demonstrate that they have no wealth. Essentially, any unmarried person can get food stamps while out of work and can stay on the program indefinitely.

Mortgage  relief:

People who owed more on their mortgage than their house was worth could have their mortgage payments set at a so-called affordable level—in government-speak, that means that you pay full price for your house only if you have a job and earn money.

Bankruptcy law:

There were new rules for consumer bankruptcy, with special emphasis on the amount that consumers were earning after their debts were cleared.

Unemployment insurance expansion, which adds to unemployment:

The federal unemployment-insurance expansions were paid by taxpayers generally, which means that an employer could lay off as many people as he wanted without adding to his federal tax burden.

Obamacare, which makes it easier to lay people off:

Lay somebody off during the crisis and, for the first time, among other things, the employer wouldn’t have to pay for former-employee health insurance.

These are no doubt just a few examples.

All the “help” increases what Mulligan calls the “marginal tax rate,” or the extra taxes paid and subsidies forgone by people who choose work over welfare.

“Waves of new programs increased the typical marginal tax rate from 40% to 48% in two years,” Mulligan writes.

People are much smarter than policymakers in Washington think. They will make rational decisions about what’s best for them, as opposed to doing what policymakers think is best for them.

Mulligan offers up an odd story to demonstrate the facts on the ground:

I met a recruiter—a man whose job it is to find employees for businesses and put unemployed people into new jobs—and he described the trade-off pretty well. Stacey Reece was his name, and he said that in 2009 his clients again had jobs to fill. But he ran into a hurdle he hadn’t seen before. People would apply for jobs not with the intention of accepting it, but to demonstrate to the unemployment office that they were looking for work.

As Mr. Reece described it, the applicants would use technicalities to avoid accepting a position. The applicants would take Mr. Reece through the arithmetic of forgone benefits, taxes, commuting costs and conclude that accepting a job would net them less than $2 per hour, so they’d rather stay home.

The circumstances we find ourselves in, and have found ourselves in, are not the fault of George W. Bush. They are not mostly due to some unique “financial” recession. They result from the incorrect policy choices made by the current administration.

That is, they are Obama’s fault.

Economy Contracted by 3 Percent in First Quarter

The final assessment by the Commerce Department is in, and the growth rate for the first quarter of 2014 was in fact not a growth rate at all, rather, a contraction of 2.9 percent.

It’s the fastest rate of decline since 2009. Commerce had previously estimated a one percent retreat.

The cold weather explains some of this. But a little chilly air should not throw the U.S. economy for such a dramatic loop.

Things seem to be picking up, but it’s looking like the 2014 rate of growth might not even reach 2 percent.

The big culprit in the latest adjustment is consumer spending, which grew just 1 percent, less than previously thought. So let’s keep talking about income inequality, because destroying the job-making class is really going to put money in people’s pockets.

Meanwhile, President Obama today fired his economic team and called advisors who have departed back in for a tongue lashing.

Sure, right.

Why Employment is Really Declining

Every month, we get some kind of increase in the jobs numbers – often lackluster and barely ahead of population growth – and every month, the White House effuses that we’ve seen 20 months in a row of job growth while carefully adding, in case those without jobs start bitching about it, there’s more work to do.

Well, turns out there’s even more work to do than the White House lets on.

Writing in the Wall Street Journal today, economist and former Bush economic advisor Edward Lazear notes that employment has actually fallen in four of the last six months because the number of hours worked has declined.

Stated simply, while more people are working, they’re working fewer hours. And if you turn those fewer hours into jobs by adding them up into 40-hour work weeks, then the number of jobs being lost has outpaced the number gained since September.

Lazear writes:

The average workweek in the U.S. has fallen to 34.2 hours in February from 34.5 hours in September 2013, according to the Bureau of Labor Statistics. That decline, coupled with mediocre job creation, implies that the total hours of employment have decreased over the period.

The labor market’s strength and economic activity are better measured by the number of total hours worked than by the number of people employed. An employer who replaces 100 40-hour-per-week workers with 120 20-hour-per-week workers is contracting, not expanding operations. The same is true at the national level.

The total hours worked per week is obtained by multiplying the reported average workweek hours by the number of workers employed. The decline in the average workweek for all employees on private nonfarm payrolls by 3/10ths of an hour—offset partially by the increase in the number of people working—means that real labor usage on net, taking into account hours worked, fell by the equivalent of 100,000 jobs since September.

Likely part of the reason hours are declining is that companies are trying to get below 50 full time employees so they are not subject to Obamacare.

The workforce participation rate is at historic lows. Nevertheless, “We’re on the right side of the issue of that matters most to the public: Jobs and the economy,” declared White House senior advisor Dan Pfeiffer Sunday.

Delusional, perhaps. A hint that aggressive spin is on the way, for sure. Or maybe it’s because White House economists really do presume work is a bad thing and people don’t want to do it.

From each according to his ability, to each according to his need!

Economy Posts Modest, but Deceptive Growth

The economy expanded at a rate of 2.8 percent during the third quarter, but the higher-than-expected growth is not as good as it seems because the improvement from the previous quarter was due to inventory building. From the Wall Street Journal: The stronger overall growth was a result of businesses restocking their shelves, a factor… Continue Reading

Obama Wins; Market Tanks

Because people who have skin in the game understand economics. The country voted for higher taxes – including higher capital gains taxes – and more regulation. And so, the stock market reacted rationally, plummeting 350 points in the first two hours of trading. As of 11:35 am ET, the Dow Jones Industrial Average stood at… Continue Reading