By Patrick F. Cannon
You can’t deny that politicians can influence the economy. Although now under control, the recent bout with inflation was certainly caused by Covid-related spending programs, and President Biden’s massive public works expenditures (Congress also played its role). And if Donald Trump is elected and gets his way, his tariff and tax programs are estimated to increase inflation beyond seven percent (it’s currently 2.4 percent). He’s a Republican? Really?
Despite the best efforts of our politicians to screw things up, the Economist magazine in a recent issue called our economy “The Envy of the World.” According to them – and few magazines are more respected – our country “continues to rack up a stellar economic performance even as our politics gets more poisonous.” And why is this? “America’s dynamic private sector draws in immigrants, ideas and investments, begetting more dynamism.” Here are a few other highlights (and I quote):
- American is a big country, blessed with vast energy sources. The shale oil revolution has driven perhaps a tenth of its economic growth since the early 2000s.
- The enormous size of its consumer and capital markets means that a good idea dreamed up in Michigan can make it big across America’s other 49 states.
- America has long married light-touch regulation (editor’s note: compared to the rest of the world) with speedy and generous spending when crisis hits.
- It is home to the world’s biggest rocket-launch industry, but also its internet giants and best artificial intelligence startups.
Compared to our friends in Europe, our economy is still healthy and growing. And despite what you may think, our tax burden is among the world’s lowest. Our tax-to-GDP ratio is 27.7%, compared to the average of 42.8% in Europe. And the Economist reminds us that “China’s output per person remains less than a third of America’s; India’s is smaller still.”
Yet, Americans love to complain about the economy. Except for that inflation caused by Covid and infrastructure spending, the inflation rate was low for all the Obama and Trump years. I can attest to that because my Social Security payments barely increased, tied as they are to the cost of living. When Obama came into office in 2009, the unemployment rate was 9.9% (remember the fiscal crisis?); when he left, 4.7%. When Trump left, it was 6.7%; now it’s 4.1%.
Now, it’s true that grocery prices spiked in 2023. I remember paying about six bucks for a dozen eggs. The other day, those eggs were $2.79. Of course, A constant source of complaint is the cost of gasoline. In 1965, I paid about 35 cents a gallon for regular. The current cost of approximately $3.75 is about the same, adjusted for inflation. And should I mention that the stock exchanges are at all-time highs?
There is a cautionary note. Our national debt is now at $35 trillion, 124% of our GDP. The only time it came near to that percentage was at the end of World War II, when it reached 119%. By 1975, it was down to 32%. This year, the interest payments on our debt (I use “our” on purpose) will be nearly $1 trillion. Yet, as you may have noticed, neither candidate wants to talk about doing anything about it. Indeed, a non-partisan budget watchdog has estimated that programs proposed by Vice President Harris would increase the debt by $3.5 trillion over 10 years, while Trump’s would add $7.5 trillion.
So, while we have a dynamic economy, the “envy of the world,” it simply hasn’t kept pace with the profligate spending of our feckless politicians!
Copyright 2024, Patrick F. Cannon
cannonnadedotcom 
The biggest factor affecting the economy over the past two administrations was the Covid lockdowns.
Both administrations saw trillions of dollars in government spending; however, only that during the Biden administration resulted in high inflation, as it occurred during the immediate aftermath of the lockdowns (too many dollars chasing too few goods and services).
The American economy is indeed dynamic. The core reason for this is Americans work hard and gain from the fruits of their labors (Marx missed the fact that workers are also consumers).
We are also relatively unfettered by onerous regulation and high taxes, unlike Europeans. I doubt most Americans realize how reliant Europeans are on government benefits and support for things like health care, education, pensions, subsidies and the like, but also price controls. The problem with such support is it comes with high costs (taxes to pay for it), restrictions and bureaucratic red tape. Think of single-payer medical care but on a society-wide scale. The support removes certain risks, to be sure, but also incentives. Why work 40 hours a week (or more) when you can get along fine with 35 or fewer? Why innovate or grow? The result, of course, is economic stagnation.
Taxes (tariffs), spending and debt are looming threats to the American economy.
Harris promises higher taxes, of course, only on the rich who already pay far more than their share). When taxes on the wealthy fail to produce enough revenue, the less rich will be next, and so on.
Trump vows he will raise tariffs, as he did during his term, notably on goods from China and Mexico. Chinese companies simply diverted production to other countries like Vietnam. Tariffs on Mexico did at least move it to slow the flow of immigrants, for a while anyway. Did they boost US manufacturing jobs? I’m not so sure, but perhaps they did keep China from taking over completely.
Besides inflation and debt, the problem with spending is it calls for more taxes. Everyone is against more spending until they realize it means less spending on them. Cries of alarm go out whenever there is talk of cutting money for Medicare, education, social security, or infrastructure. No politician wants to be accused of pushing granny and her wheelchair over the cliff. See Europe.
Taxes and inflation certainly hurt small businesses that can’t easily pass costs along to consumers, but they really impact people whose revenues are at the margin: people on fixed and low incomes. For them, an extra few dollars for gas means giving something else up.
The gal who cuts my hair is a case in point. Although her costs have gone up, she’s been reluctant to raise her very reasonable fee, as she knows that many of her clients couldn’t afford it. As it is she works two jobs and commutes from two counties away since she can’t afford Mayberry rents. She lives in a trailer on her mother’s property.
Lots of folks around here, where per capita median income is notably below the national average, have taken the brunt. They are still recovering from the last inflation spike two years ago!
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Taxes are not well understood. As you suggest, the top 10 percent pay about 90 percent of the taxes. 40 percent pay no income tax at all. But it’s never a good idea to lower taxes and increase spending!
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It’s not a good idea unless the lower tax rates result in increased government revenues.
Keynesians and liberals argue against this supply-side notion. However, it seems the Trump tax rate cuts did indeed boost tax revenues significantly.
See: https://budget.house.gov/press-release/despite-cbos-predictions-trump-tax-cuts-were-a-boon-for-americas-economy-and-working-families
And: https://www.politico.com/news/2021/10/12/tax-revenue-surge-pandemic-515792
Government outlays of course counter tax revenues. I’m sure you’re well familiar with the infamous Debt Clock: https://www.usdebtclock.org
It may seem like a logically good idea to increase taxes to pay for spending, but in practice it’s not. This is essentially what Europe has done. Increases in tax revenues seem to spur more spending. The EC actually punishes member countries (Greece, Italy inter alia) with fines and austerity measures if the countries fail to address debt from their heavy spending, much of which is dictated by the EC for unproductive goals like climate and green energy. From my perspective, this approach only creates stagnation.
The effect of Trump’s rate cuts on the general economy can be debated, but they didn’t cause inflation even as they may have boosted spending. One thing they did accomplish is allow average citizens to keep more of their money and spend it as the they saw fit. People tend to spend their money — allocate it, if you will — more wisely than when the government spends it.
As for what Harris might do if she wins, I suggest looking at places like Illinois, California and other leftist states to see how the tax/spending approaches work. Not so good. Ref state Indiana, in contrast, keeps taxes and spending low. Some might argue too low, but lately Indiana had a tax revenue surplus. And they gave the money back. I suspect a Harris regime would not be inclined to think along those lines.
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My point is that it’s a good idea to give the average Joe more money to spend, as long as you don’t outspend Joe. By the way, Trump gets credit for a tax bill that was in the works by the Republicans in Congress long before he won the election. They were waiting for any Republican president to sign it.
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And he did. I doubt anyone thinks he thought up the tax code policy all by himself.
It’s not just the tax cuts, it’s the tax rate cuts. Kamala talks about tax cuts, but they are one-time, temporary, and have little impact if any.
The government always outspends the average Joe. They just keep borrowing the money in Joe’s name!
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