“The modern conservative is
engaged in one of man's oldest exercises in moral philosophy; that is, the
search for a superior moral justification for selfishness.”
John Kenneth Galbraith
Today’s front-page
story leads with a sentence containing the words “Booming Economy.” This refers, of course to the economy as it
currently affects those with sufficient wealth to be invested in the market, or
at the top profit end of retail sales.
Reflecting,
however on the entire economy, especially the long-term prospects, paints a
more somber picture. The federal deficit
has never been as high, relative to GDP, adjusted for inflation or not, as it
is this year. While it is certainly true that There were significant Obama
deficits, these were accrued in the worst years of the second worst recession
in US history, and the largest of those (2008-2009) was actually the result of
the last Bush 43 budget. This is not to criticize “W” for the budget in the
wake of the housing bubble collapse, as many experts, of which he was most
assuredly not one, agreed that TARP was essential. It follows that
Unemployment payouts were at a vey high level as well, with unemployment as
high as 9.9% from 2009-2010. It follows that federal/state assistance payments
soared as well, due to families with no working member. From 2009 to 2001,
there were 26 consecutive months of job losses as a result of the Great
Recession.
In fact, since
1941, there had been only one year with average unemployment higher than the
mess Obama inherited, and that was 1982, after the Reagan tax cut, when
unemployment hit 10.8% briefly, accompanying a year of negative GDP growth. To
find a larger negative GPD than that inherited by Barack Obama in 2009, one
must look all the way back to 1946, in the post war surge of former military
personnel into the workforce, as wartime jobs tapered off. Truman, however,
with several employment and jobs programs left Ike with a healthy 4.1% annual
GDP growth rate, and it continued positive with a couple of minor blips until
the housing bubble collapse of kicked it down to -.1% in 2008, and further down
to -2.5% in 2009. While deficits in those years of high unemployment and
negative growth were very high, the effect was to eventually spur economic
growth and GDP back to the plus column, with deficits decreasing. This was not,
as one might well expect (if one had any real knowledge of economics), a rapid
process, as many Americans had lost homes, and all construction sector jobs
were in a slump as a result, from mortgage lending to roofing to electrical and
HVAC work.
However, by
2013-14, the deficit had returned to pre collapse levels and unemployment was in the sub 6% level and decreasing steadily.
In 2015, the GDP was 2.9%, and unemployment was at 5%
and decreasing steadily, as it had since 2009. In fact, the current (2018)
unemployment rate of 4.1%, for which Mr. Trump takes full credit, is simply a
continuation of the downward slope of the Obama second term years, when
unemployment dropped from 7.9% to 4.7%.
Yeah, I know,
so what? Here’s the “rest of the story.” While Trump boasts of “job creation”
(for which no President ever can really take credit) and “lower taxes,” we
might expect a more robust economy would result. If we consider the federal
deficit as an indicator, the facts are sobering. Bush 41 inherited an economy
recovering from the Reagan spending spree and Bush 41’s coping with it, (Read
my lips, no new taxes!”) which, promises notwithstanding, led to the inevitable
- new taxes. This should not to be construed by the reader as me criticizing George
H.W, Bush. He did what was necessary, and the highest marginal tax bracket for
1992 was raised (eventually to 35%) from Reagan’s low of 28%, which was the
lowest marginal percentage since the Great Depression.
For those who read history, the Crash was
prefaced by Calvin Coolidge, a Republican with a Republican Congress, cutting
the marginal rate from 46% in 1925 to 25% in 1926. This was a significant
source of fuel for the out of control spending spree in the late twenties which
came tumbling to a halt with the Great depression. While there are several
other generally accepted precursors to “the crash”, the excess of corporate
profit which prompted low, or no, security lending and investment along with
grossly under (actually just “un”) regulated bank policies, was certainly a
factor, which I feel has been under-addressed by many historians. John Kenneth
Galbraith’s retrospective, however, does so. “The Great Crash, 1929,” written
by Dr. Galbraith and published in 1955, is an economic history of all factors
which led up to the Wall Street Crash of 1929, and unlike too many economics
focused books is extremely readable. But now, back on track.
From 1941 to 1981,
deficits were either sight or there were actual federal budget surpluses, Yes,
I said surpluses! In 1982, the highest marginal income tax rate was decreased,
eventually to the to the Reagan low which was to take effect in 1988, of 28%,
the lowest rate since the Depression. Now here’s the weird part: Over that same
span (1982-1991) the Federal deficit soared, reaching a quarter of a trillion
dollars several times in a period of no massive recession and no war!
In 1993, the
first Clinton year, even with a Republican congressional majority the marginal
rate was raised to 39.6%. Now here’s the funny thing, the deficit decreased
every year of the Clinton administration, and for the last three Clinton
budgets, the US had a surplus which was projected to continue into
the Bush 43 years. So, everything was back on track, no?
No. Because
Bush 43 lowered the marginal rate and went to war in Iraq. Again, deficits
soared. The Clinton surplus was a phantom for “W,” tax cuts for the rich and
the fog of war mostly to blame. Then the bottom fell out of the economy, as
grotesquely under-regulated lending and securities markets played the housing
market like slot machines, generally, in most cases, with other people’s money.
The fraud in mortgage brokerages and major banking houses alone is well
documented, albeit little understood by most, even those who lost everything.
There's a certain part of the
contented majority who love anybody who is worth a billion dollars.
John Kenneth Galbraith
Bush, with
advice from some who actually understood the gravity of the crisis, authorized
TARP (“the bailout”, “too big to fail”, etc.) and the deficit carnage began.
Through the Obama first term, unemployment remained above 8%, and the expected
high deficits accompanied that statistic. Contrary to what some have claimed,
The Obama administration did not extend or change welfare eligibility in any
sense, but did authorize the extension of unemployment compensation, doing so
with a Republican Congress which had stated its intent to thwart him in any way
possible. In 2013, the top marginal income tax rate was increased to 39.6% and
the size of the deficit decreased accordingly.
In 2016, the last Obama year, the deficit was lower than at any time
since 2006 and was lower than 7 of the 8 Bush 43 years! These figures, by the
way are adjusted for inflation, so it really is apples to apples!
Are we beginning to see correlation here? In
truth, the GDP growth under Obama in 2015 (2.9%) was exactly the same as the
Trump 2018 growth, in his “booming” economy, and greater, than Trump’s 2017
figure of 2.2%! But (wait for it)
excluding the 2009 deficit (Bush budget, which, in fairness, included $445
billion in TARP funds), the first two Trump years’ deficits of 2017 ($666
billion), and 2018 ($779 billion), are both higher in this “booming” economy
than any Obama year during the Great Recession. In fact, if things go as
predicted, the 2019 Trump Federal deficit will top $900 billion. This in a
growing, even “booming,” economy. I put “booming “ in quotes because I believe
that appellation to be subject to scrutiny. Putting it simply, in case any
Trump supporter accidentally reads this (doubtful), “If the cost of maintaining
appearances while bragging about how great things are is borrowing in ever
increasing quantities to fund it, are you really “booming” or just living on
“borrowed” (see what I did there?) time?
So, is Donald Trump
concerned? Here’s what he said as candidate Trump, facing two years with a
Republican controlled Congress: "It (balancing the federal budget) can be
done. ... It will take place and it will go relatively quickly. ... If you have the right people, like, in
the agencies and the various people that do the balancing ... you can cut the
numbers by two pennies and three pennies and balance a budget quickly and have
a stronger and better country."
So how is that
working so far? Not so much, apparently. Trump had repeatedly shrugged off any
concerns about the rising national debt because it was projected to come to a
head only after he would finish a second term. During a 2017 briefing with
senior officials, Trump responded to a presentation of charts and graphics by
saying, "Yeah, but I won't be here."
As a matter of
record, we know Trump has played fast and loose with his and investor’s
finances at times. We also know he has grossly undervalued or over valued his
own net worth to gain loans or declare bankruptcy multiple times. When it was
his money, I truly didn’t care, but this is the nation’s fiscal welfare and his answer is “I won’t be here?” Would that it were so, even now!
There is something wonderful in
seeing a wrong-headed majority assailed by truth.
John Kenneth Galbraith
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