Record Deficits?

This is a response to a blog by Kimba, a friendly political adversary. I wish nothing but the best for him and his family, which includes the rejection of “Keynesian economic theories.”

Kimba,

I agree! Bush has increased the size of the government. This is a no-no for a conservative of my stripe. Are you saying you want to shrink the government? Do you think this is what the Democrats stand for?

Bush’s tax cuts and corporate excise tax cuts have created record returns. The less people have to pay the more they put into the economy and the more the economy grows… which increases the tax base.

Bush is a neo-con, his ideology lives more so in the Democratic Party than mine, at least historically. Do you remember a post I did on what a neo-con is? I quoted The Neocon Reader as saying:

“…Although neocons are proud to have broken in many ways with the post-Cold War consensus, they can reasonably claim that their ideas have deep roots in early American and British history, and in policies advocated by American presidencies such as John Quincy Adams and Theodore Roosevelt, and by British prime ministers Margaret Thatcher and Tony Blair. As such, and because of the quality of the neoconservatives’ research and advocacy, their fundamental ideas are likely to survive changes of control of the White House.

“So, too, with domestic policy. The programs advocated by neoconservatives in the fields of crime, welfare reform, and what has been called ‘the culture war’ did not spring fully formed from the minds of those who helped George W. Bush to fashion ‘compassionate conservatism.’ Instead, these ideas originated with Victorian reformers, were then buried under the mass of legislation that constitutes the New Deal of President Franklin D. Roosevelt, and by President Lyndon Johnson’s Great Society, to re-emerge in the articles, pamphlets, and proposals of the neocons. In the area of domestic policy the ‘neo’ prefix may turn out to be as potentially misleading as it can be in the foreign policy field (or at least too all-encompassing to describe what neo-conservatism is about.

“But we must begin our discussion of the development of neoconservatism with a disclaimer. As David Brooks notes in an essay included in this volume, ‘If you ever read a sentence that starts with “Neocons believe”, there is a 99.44 per cent chance everything else in that sentence will be untrue’.”

Basically all the people you lash out at on this blog are self-admitted “New Deal” people. Is your party going to keep the tax cuts where they are or raise them? Your main runners for the Democrats are wanting to put a tax on oil companies. Question is:

“will this raise or lower the price of gas?”

When your party puts the clamps on the 27-percentile, they contribute less to 401k plans in matching funds for the companies they own. How does that help the common man? They raise the price of the goods they make to absorb the increased tax-burden. How does this help the common man? When Bush cut the corporate tax, less corporations moved overseas. Outsourcing declined. This helped the common man. You should consider what will allow for the economy (which is in overdrive right now – even with all the problems worldwide).

You are not considering the deficit to GDP margin either, which is a sure sign of your political bias. This bias covers up an important fact… that is:

Clintons Deficit Worse Than Bush’s

On average, Bill Clinton’s deficits were larger than George W. Bush’s. On average, the Clinton deficits over the first three years of that administration were much larger than Bush’s. The 2004 deficit, adjusted for inflation, is ranked 12th since 1940. The 2004 deficit, as a percent of GDP, is ranked 21st since 1940. The top five deficits run in this country happened while Democrats were in the White House.

The reason I mention all of this is because, this past Friday, the president released his economic report and proposed budget for fiscal year 2004. The document forecast a $304 billion deficit. This number, of course, was seized on by the media which trumpeted it as, “a record deficit.” In fact, I haven’t seen the word “record” thrown around by the media this often since the Grammy’s.

Last year I discussed the economic fallacy called “deficit attention disorder.” That is the tendency of the Washington media to focus on these deficits as an end in themselves, rather than as a symptom of a recession. The old nostrum goes this way: Deficit spending crowds out private investment; this crowding effect drives up interest rates; and these high interest rates are bad for economic growth. Supply-siders correctly reject this reasoning, pointing out that there is no correlation between deficit spending and high nominal interest rates, and in fact that high real interest rates tend to correlate with higher economic growth.

But that’s neither here nor there because the premise of the debate is wrong. Not only is the projected 2004 deficit not “a historical record” or “an explosion of red ink.” It’s not even close. The numbers that prove this are available from the Office of Management and Budget. They are charted below.

Assuming these numbers are accurate, and they are, from whence has arisen the myth of Clinton the deficit hawk and Bush the king of red ink? It has arisen entirely in the realm of forecasted rather than actual numbers. Forecasts are a necessary part of public budgeting but they are — especially when projected a decade or more into the future — fundamentally guesses.

The media has compared a forecast of surpluses that was calculated while Clinton was president to a forecast of deficits which is being calculated now that Bush is president. However, in the real world, we find that the Bush deficits, when compared in inflation-adjusted terms, are relatively mild. And more importantly, since these deficits are being criticized because of their alleged effect on the overall American economy, when the deficits are presented as a percentage of GDP they are very small. For instance, the projected 2004 deficit as a proportion of GDP is 90% lower than FDR’s deficit in the year 1943.

Nations at war borrow money. This has always been the case. Not only is it necessary, but it is probably smart. It was smart when FDR and Truman borrowed money to win WWII; it was smart when Ronald Reagan did so to win the Cold War; and it is smart when George W. Bush does it to today to wage and win the war against terrorism.

I will post another link to an article that cuts through your myths that somehow the Democratic Party helps the little guy.

Anti-Bush Bias (in Black & White)

The 2007 edition of the report was released on April 17, with the media immediately seizing on the conclusion that “gaps continue to exist between black and white Americans.” What the media did not note, however, is that the current rate of black unemployment is lower than the average rate achieved during President Bill Clinton’s second term, and that black unemployment has dropped precipitously since the full implementation of President George W. Bush’s tax cuts in late May 2003.

Since those tax cuts went into effect, the rate of black unemployment has dropped 2.7 percent to just 8.3 percent. Comparatively, this statistic averaged 8.6 percent during Clinton’s second term.

22 consecutive quarters of economic growth and expansion, 8-million jobs and surging tax revenues that outpaced projections by 300-billion. But the Democrats have attached the anchor to this growth, which will do nothing but hurt our economy (NRO article.) In this same article – just mentioned – we find the “pay-as-you-go” crowd exposed.

Pay-go, or “tax-go,” is used as a smoke-and-mirrors trick for raising taxes. The budget makes it easy to increase spending next year by offsetting the “pay” part of the equation by alleged savings over many years, while at the same time subjecting all tax extensions to a series of unattainable hurdles. For example, expiring mandatory spending programs and expiring tax relief are treated differently, so that existing spending continues to be assumed in the baseline (even after its expiration) while the extension of existing tax policy must be offset or receive 60 votes.

This is why Larry Kudlow’s article in January rubs in the face of naysayer’s like Lou Dobbs are, and will continue to be wrong:

….There’s also an interesting op-ed by Deputy Treasury Secretary Bob Kimmet (an old friend with lots of supply-side blood in his veins), who notes the positives of “job churn.” More than 55 million Americans, or four out of every ten workers, left their jobs in 2005. Since there were more than 57 million new hires that same year, this is good news. It also means that new hires exceeded employee separations by an average of 364,000 per month. Per month!

Eat your heart out Lou Dobbs.

The fact is, jobs continue to boom. So do real incomes, productivity, and profits. Economist Michael Darda points out that real wages over the first five years of the Bush expansion are actually growing more rapidly than over the first five years of the Papa Bush/Bill Clinton boom.

Meanwhile, unemployment today is only 4.5 percent. Federal, state, and local tax collections are soaring through the roof. Budget deficits are plunging. Inflation-adjusted GDP is averaging just more than 3 percent. Family wealth stands at a record of slightly more than $54 trillion. Total employment is at a record 146 million.

Stock markets, as you might have noticed, also continue to rise. They have done so, almost without interruption, for four years, on the shoulders of a remarkable surge in business profits — which itself is a function of the high-tech, knowledge-based product explosion.

These corporate profits, along with our record-setting stock markets, have enriched the more than 100 million investors who are participating in this prosperity. In fact, this America boom is spearheading a global economic surge. While the American free-market model is often derided as “cowboy capitalism,” imitation remains the sincerest form of flattery. And it isn’t just China, India, and Russia who are acquiescing to the worldwide spread of American capitalism. It’s also Eastern Europe and parts of South America. Heck, even the socialists in Old Europe — like France and Germany — are getting into the act by reducing individual and corporate tax rates to promote growth.

Note to John Edwards and other modern-day class warriors: The best anti-poverty plan is a growing economy, one that creates jobs and higher middle-class living standards. As free enterprise has been unleashed around the world, government planning once again has been rejected. This is the spirit of Adam Smith’s Wealth of Nations, where he argued almost 250 years ago for free markets, free trade, and a very light touch with respect to taxes and regulations.

Poor Getting Poorer and the Rich Getting Richer

Undertaxed America

Taxing Us to Death

UPDATE: COLLEGE GRADS HAVE BRIGHT FUTURE

USA Today article

College graduates are experiencing the best job market in four years as a stronger economy leads more employers to ramp up hiring.

Employers expect to hire 17.4% more new college graduates in 2006 and 2007 than in 2005 and 2006, according to a new survey by the Bethlehem, Pa.-based National Association of Colleges and Employers (NACE).

Signing bonuses range from $1,000 to $10,000, with the average at $3,568. And employers reported plans to boost their starting salary offers by 4.6% over last year, nearly a full percentage point higher than increases for the classes of 2006 and 2005.

"This is the fourth year in a row that employers have predicted an increase in hiring," says Andrea Koncz at NACE. "It really is because of the economy and more demand. Companies are growing."

For example:

•Companies are ramping up hiring. Accounting and tax firm KPMG typically hires about 2,500 new graduates, but they expect to boost that by about 10% in 2007. Manny Fernandez, national managing partner-campus recruiting, says competition for students is intensifying. Signing bonuses are being used in some markets, he says.

•Some colleges and universities are also seeing more employers offering internship programs for current students: Employers extended job offers to more than 70% of their interns, according to a separate study by NACE.

At St. Olaf College in Northfield, Minn., students are landing internships at large companies such as General Mills.

"It's optimistic," says Sandy Amy, assistant director of internships in the center for experiential learning at St. Olaf. "They're finding opportunities. (Internships) give them the background they need."

•Some soon-to-be graduates are finding they can be pickier about the jobs they accept and can take into account other priorities such as flexible work schedules or similar benefits.

Ashley Hall, 21, is graduating in May from Boston College with a B.A. in accounting and already has a full-time position lined up with KPMG. She earlier had an internship with the company and was drawn there in part because she says they value work-life balance.

"As long as you are willing to put in the effort to interview and network, there's definitely a job market out there," Hall says.

Stephanie Lee, 20, of Milwaukee, is a junior at Marquette University who has already gotten some contacts from potential employers. She expects to graduate in May 2008 with a major in information technology and marketing.

"The outlook for IT grads is going to be great. I get numerous e-mails from IT professors with opportunities," Lee says. "It's very positive."