Monday, December 26, 2016

From Truman to Obama: Presidential Economics

From George Washington to Barrick Obama, U.S. presidents sell their administration’s economic accomplishments normally striking a tone somewhere between Arthur Miller’s Willie Loman and Meredith Wilson’s Harold Hill. For example, just this year President Obama claimed that, “Anybody who says we are not absolutely better off today than we were just seven years ago, they’re not leveling with you. They’re not telling the truth.”

The question is not whether Americans are better off, it is how much better off are they after recovering from the 2008-09 recession? In the accompanying table, economic progress during every economic recovery since 1947 is compared for each U.S. president. As presented, despite a $900 billion stimulus package in 2009, record low interest rates. and continuing annual deficit spending above $500 billion, President Obama has presided over the weakest economic recovery since the Truman Administration.


What accounts for the poor economic performance in the current recovery? More and more evidence point to rising regulations as the economic culprit. At the current pace of rulemaking, the American Action Forum estimates the Obama Administration will issue a total of 641 major rules before the president leaves office, bringing the nation's regulatory bill to $813 billion. By contrast, President George W. Bush issued 426 major rules during his tenure in the White House. According to the Wall Street Journal, the Obama Administration is responsible for six of the top seven years of red-tape creation in the nation’s history. Under George Bush Jr. we had “no child left behind,” but under Barrack Obama we have gotten “no economist or lawyer left behind.”

Two of Obama’s legislative/regulatory programs demonstrate the negative impact of expanding regulations. First, the Affordable Care Act (ACA) signed into law in 2010 demands that companies with more than 49 workers either provide health insurance to employees working 30 hours or more weekly, or pay a stiff fine. Not surprisingly since January of this year, Americans working part-time due to business conditions has risen at more than twice the pace of overall employment growth.

A second, major economic growth killer is the Dodd-Frank Act. Said the U.S. Chamber’s David Hirschmann, president of the Center for Capital Markets Competitiveness, "It (Dodd-Frank) increased uncertainty for American businesses and hindered their ability to promote economic growth and create jobs." Since passage in July 2010, commercial banks have shed 2.7 percent of their employees in contrast to firms outside of commercial banking that expanded their jobs by almost eleven percent during the same time period.

In Creighton’s monthly survey of bank CEOs in rural areas of ten states, bankers indicated that rising regulation was, and would be, the number one factor threatening their bank’s growth prospects. In our October 2016 survey, 27.3 percent of bankers indicated that rising regulation represented in their bank’s greatest economic challenge over the next five years.

Even with the onslaught of regulation at the national level, I expect the national economy to continue to grow by 2.3 percent in 2017 even as rural areas of the nation heavily dependent on agriculture and energy experience flat to slightly negative growth for the first half of 2017. U.S. businesses and consumers are riding a thoroughbred economy, but with the reins tightened by federal regulatory bodies. It is time to “let the big horse run.”
Ernie Goss





Saturday, November 19, 2016

Cubs Win World Series, Trump Triumphs, What's Next? Tax Cuts, Faster Growth, and More U.S. Investment

For the first time in 108 years, the Cubs won the World Series and U.S. voters elected its first president to have never held political office, nor served in the military. What's next, "Browns Win Super Bowl?"

While much is unknown regarding the Trump presidency, several changes are very likely. One change that I place at 99.9% likely is a significant tax cut on corporate earnings of U.S. firms held overseas. Currently these earnings are not taxed by the IRS until they are brought home or repatriated.

According to the Congressional Joint Committee on Taxation, the total untaxed earnings of U.S. corporations held abroad is approximately $2.6 trillion with Apple alone stowing $181 billion in foreign financial vaults. These earnings would likely flow back to the U.S. with firms increasing investment in plant and equipment or rewarding investors with cash dividends or stock buybacks.

Regardless of the usage, the taxes, investment, or dividends would be a significant stimulus to the U.S. economy potentially exceeding the impact of the Obama 2009 Stimulus Package. Goldman Sachs estimated that reducing the rate to 14% from the current 35% levy would add $240 billion to the federal coffers over and above the gains for state tax collections.

However, for my agriculture colleagues and friends, this action, as it did in 2005, tends to push up the value of the U.S. dollar and leads to lower farm commodity prices.

Even so, it should be done; it will be done.
Ernie Goss

Sunday, October 16, 2016

President Clinton's "Crazy Affordable Care Act" Results in Higher Costs and More Part-time Jobs

In 2010, Congress and the Obama Administration passed the Affordable Care Act (ACA). At the time, its chief supporter, President Obama, argued that the ACA would incentivize hospitals and primary physicians to deliver better health outcomes at lower costs to a greater share of the U.S. population.

As implemented, the ACA demands that companies with more than 49 workers either provide health insurance to all employees working 30 hours or more weekly, or pay a stiff penalty.

The result, businesses have incentive to reduce worker weekly hours below 30. Not surprisingly, since passage of the ACA, the share of all U.S. workers working part-time, but wish to work full-time, has more than doubled.

Regarding cost, the evidence is even more discouraging. At a compound annual rate, health insurance expenditures for individuals and families grew by 6.1% yearly six years before ACA adoption and by a much higher 8.9% annually for the six years after ACA.

But the worst is yet to come. According to Barclays' analysis of rates, the average national health insurance premium will soar by 24.2% for 2017. Arizona will lead the way with an increase of 68.1% with other states not far behind such as Illinois at 43.9%, Iowa at 31%, Florida at 17.7%, Colorado at 20.2%, North Carolina at 20.4% and Pennsylvania at 23.6%.

Likewise, the percentage of counties being served by two or fewer insurers in the federal exchanges will rise to 39% from only 14% this year.

Due to diminished competition among insurance companies, Americans can expect to suffer from even higher growth rates in prices in the years ahead. It may be a bitter pill, but President Bill Clinton's recent statement that the ACA is "the craziest thing in the world" appears to be closer to truth than fiction. Ernie Goss

Thursday, September 15, 2016

Is Obama the Economic Anti-Reagan? Reagan Faster Overall & Wage Growth; Obama Swifter Profit Growth

In 2015, Obama's former campaign manager Jim Messina said, "President Obama in many ways has helped start the same kind of political revolution that Reagan did 30 years ago."

Both presidents inherited recessions but the two leaders are markedly different in terms of fiscal policy responses. Conservative commentator Charles Krauthammer insists that Obama seeks to be the anti-Reagan.

During the first 7.5 years of their terms, as a percent of gross domestic product (GDP), Obama increased federal taxes by 3.5%, while Reagan reduced federal taxes by 2.1%. And, in terms of federal spending as a percent of GDP, Obama expanded federal outlays by 0.03%, but Reagan reduced federal spending by 10.0%. As a result of superior economic growth during the Reagan era, the federal debt as a percent of GDP expanded at a slower 17.0% pace under Reagan than the more rapid 27.8% gain under Obama.

Not only have Obama's taxing and spending policies been in sharp contrast to Reagan's, his economic outcomes have likewise been very different. After 7.5 years, Obama's economic gains exceeded Reagan's in the following areas:

1. The U.S. unemployment rate declined by 2.9 percentage points compared to 1.9 percentage points for Reagan.
Business profits, as a share of GDP, expanded by 3.7 percentage points during Obama's tenure compared to a weaker 1.9 percentage points under Reagan.

2. The U.S. stock market advanced by 133% in contrast to a weaker 100% during the Reagan era.
Metrics in which Reagan's economic performance in his first 7.5 years bested Obama were:
U.S. GDP expanded by 27.3% versus 15.3% for Obama.

3. U.S. non-farm jobs grew by 16.1% in contrast to Obama's more tepid 9.7%.
Wages as a share of GDP advanced by 2.1% during the first 7.5 years of the Reagan term, but declined by 1.8% during Obama's first 7.5 years.

Metrics in which Reagan's economic performance in his first 7.5 years bested Obama were:
1. U.S. GDP expanded by 27.3% versus 15.3% for Obama.

2. U.S. non-farm jobs grew by 16.1% in contrast to Obama's more tepid 9.7%.

3. Wages as a share of GDP advanced by 2.1% during the first 7.5 years of the Reagan term, but declined by 1.8% during Obama's first 7.5 years.

Thus, historical U.S. economic performance data support the hypothesis Obama's policies as well as economic outcomes have indeed been anti-Reagan.
Ernie Goss

Friday, August 19, 2016

Super Rich Meet in Omaha and Propose Tax Hike: Highest Bracket Already Pays Six Times the Rate of the Middle

Millionaire Hillary Clinton and billionaire Warren Buffet met in Omaha earlier this month to trumpet higher income tax rates on upper income earners. Ignoring the data, the two super-rich, joined by income laggards Dallas Maverick owner Mark Cuban and former New York Mayor Michael Bloomberg, argue that levying higher tax burdens on workers in the top income bracket will reduce income inequality.

However between 1980 and 2013 when income inequality, as measured by the Gini Coefficient expanded by 22.2%, the share of federal income taxes paid by the highest one-fifth of earners rose from 64.7% to 88.0% while the share paid by the lowest one-fifth declined from +0.1% to -4.0% (i.e. tax rebates greater than tax payments). Even the middle income’s share dropped from 10.7% to 3.9% over the 33 years.

The reasons that taxing high income individuals more heavily does not reduce income inequality are that excessively high tax rates on high income:
1) discourage individuals from pursing higher education and training to increase income;
2) encourage individuals to reduce work efforts and to increase leisure activity;
3) restrain small business formation and risk taking by entrepreneurs seeking greater financial returns;
4) incentivize individuals to spend excessively on goods and services that are deductible from taxes and;
5) encourage high income individuals to move to lower tax nations.

But unfortunately for the economy, envy economics, as evidenced in Omaha in August, remains a viable political tool by generating votes and self-righteous smugness from its devotees.

Ernie Goss

Wednesday, July 13, 2016

Taxpayers Need to Shine Light on Solar Energy

In 1982 as a graduate research student at the Department of Energy’s (DOE) Oak Ridge National Laboratory, I worked on solar energy projects. At the time, the goal was to replace fossil fuels with solar energy in the production of electricity. As an infant industry, it was argued that all solar needed was short-term taxpayer subsidies to become competitive with its elder rivals. However after 34 years and massive taxpayer subsidies, the industry still cannot compete cost-wise with rival energy sources in pro-ducing electricity.

The latest DOE data show that in 2013 taxpayers showered solar energy with $4.4 billion in subsi-dies for a mere 19 million megawatt hours (MWH) of electricity production, or one-half of one percent of total electricity usage for the year. That works out to $23 per MWH when the average retail price for electricity was only $13 per MWH. In addition to these subsidies, the federal government invested in scores of failed solar energy firms including $535 million in Solendra, $1.5 billion in Sun Edison, and even $2.7 billion in Spanish solar energy giant, Agengoa.

Despite the subsidies and excessive costs per MWH, advocates argue that solar energy remains an infant industry that needs taxpayer funds and regulatory coddling. If the goal is to reduce CO2 emissions from coal-fired electricity generation, a better approach is to introduce a carbon tax taking the decision making out of the hands of market meddling politicians, and putting it into the hands of individuals and investors with “skin in the game.”
Ernie Goss

Tuesday, June 14, 2016

Trans Pacific Partnership A Winner for U.S.: Politicians, Left and Right, Are Wrong

When politics and economics collide, economics comes up roadkill. Take the case of the Trans Pacific Partnership (TPP). More than 99% of economists support this trade pact, yet 100% of individuals still in the race for the U.S. presidency are opposed to opening up Asian markets to U.S. manufacturers, businesses and farmers via TPP.

In October 2015 in Atlanta, the Obama Administration reached agreement with Japan, Vietnam and nine Pacific Rim nations to reduce trade barriers to produce the largest trade pact in the nation's history.

Due to reductions in trade restrictions, the USDA estimates that implementation of TPP will expand U.S. sales abroad by $130 billion annually. According to my calculations, if agriculture accounts for its historic share of U.S. exports, TPP would boost agricultural sales by $8.4 billion, and U.S. net farm income by approximately $1.0 billion in one year alone.

The deal, however, requires Congressional approval and both Democrats and Republicans have finally found something they agree on----rejection of TPP, economic jingoism, or what I will call "economic tomfoolery."

In 2015, the U.S. was the second largest exporting nation, behind only China. In that same year, the U.S. worker was the most productive on the face of the earth. Slinking into protectionism by rejecting fair and free trade agreements only subsidizes the less productive, and slows overall economic prosperity. Ernie Goss.