Silly Politicians! Stimuli are for Growth!

We’ve all seen cartoons and comedies where people hilariously use colanders to bail water out of sinking boats. It’s funny because we know the folly of using the wrong tools to accomplish our objectives.

Common sense tells us most of the time. But not all questions are that simple. For some, research and experimentation is required, especially if the problem is new or very large. You should try several things and see which works best. The next time you want to accomplish that particular objective you know what works best.

This works for almost everyone. Except politicians. Mostly Democratic politicians but they are joined, of late, by so many Republicans it’s clear that politicians in general lack the sense to pound sand in a rat hole.

When FDR assumed power in the midst of the Depression he increased Government spending, instituted Entitlements and increased the Government’s control of huge portions of American Life. For years he was credited with defeating the Great Depression. Government Spending and increased taxes to finance that spending were seen as the best tool for Economic Stimulus. But we have a little more evidence today than before. So much so that many current Economists say not only did FDR’s programs not pull us out of the Depression, they deepened and prolonged it! With more evidence comes new conclusions. There is now sufficient data available that Economists are not completely convinced The New Deal was the engine of Economic Stimulation it is feted to be.

There is one option for Economic Growth for which there is little question as to its effectiveness – Tax Cuts. Democrats routinely refer to the 1980s as “The Decade of Greed” due to the enormous growth in the Economy. The numbers for the Lower and Middle Class gains are misrepresented to maintain class envy and warfare. But the Reagan Tax Cuts enacted after the ravages of the Carter years produced the very Economic growth and stimulus the current Administration says it wants. The New Deal? Not so much.

Consider the following:

The average annual growth rate of real gross domestic product (GDP) from 1981 to 1989 was 3.2 percent per year … includ[ing] the recession of the early 1980s … and the seven expansion years, 1983-89. During the economic expansion alone, the economy grew by a robust annual rate of 3.8 percent. By the end of the Reagan years, the American economy was almost one-third larger than it was when they began.

… Real median household income rose by $4,000 in the Reagan years–from $37,868 in 1981 to $42,049 in 1989 …

From 1981 through 1989 the U.S. economy produced 17 million new jobs, or roughly 2 million new jobs each year. …

What happened to all that money? What did we do with all that prosperity? As they are doing today, politicians spent it as if there were no tomorrow. Enormous increases in Tax Revenue to the Government were squandered by a Congress controlled by Democrats.

The budget deficit exploded in the 1980s. … in 1981, the budget deficit was $101 billion (in 1987 dollars) and 2.7 percent of GDP. In 1983 it peaked at $236 billion and 6.3 percent of GDP. By the time Reagan left office in 1989, however, it had fallen to $141 billion and 2.9 percent of GDP.

The national debt (public debt) in real 1987 dollars doubled from $1,004 billion in 1981 to $2,028 billion in 1989. As a share of GDP, the debt increased from 27 percent to 42 percent …

Nominal federal revenues doubled in the 1980s from $517 billion to $1.031 trillion. From 1981 to 1989 real federal revenues climbed by 20 percent.

Even income tax revenues grew substantially in the 1980s. In 1981 income tax receipts totaled $347 billion; in 1989 they totaled $549 billion, a 58 percent increase. In fact, income tax collections grew only slightly slower in the 1980s than in the 1990s despite income tax rate reductions in the Reagan years and increases in the Bush-Clinton years. Real income tax revenues rose by 16.3 percent from 1982 to 1989 after the top income tax rate had been reduced from 70 percent to 50 percent in 1983, and then to 28 percent in 1986.

The federal budget was not cut under Reagan. In fact, it was 69 percent larger when Reagan left office than when he entered it – 22 percent larger in real terms.

Even profligate spending could not derail the prosperity Tax Cuts generated. Lest there be any doubt about Tax Cuts, consider the Reagan Administration did not preside over the largest rate of Economic growth in the 20th Century. First place goes to JFK’s administration wherein “… income tax rate cuts of 30 percent that were enacted in 1964 generated several years of 5 percent annual real growth.”

One can whine, moan, wriggle, squirm, spin, lie, deny, obfuscate and anything else you like. The plain truth is Government Spending is not a reliable means for Economic Stimulus. Even if it works a little, it is not the best option. That task is best accomplished by Tax Cuts.

Barack Obama knows this. He may be many things, but stupid he is not. For all his talk of Economic Growth, he does not truly desire it. The less of the Economy he controls, the less the people need him. He does not want Economic Growth, he wants growth in Government dependence. He will allow sufficient Economic growth to finance the Government handouts which keep him in power and not a cent more. If what you want is Economic Growth, you do what produces it. If you don’t you are either stupid or lying and we’ve ruled out stupid.

The question now is, what are we going to do about it? What can we do about it?

Blue Collar Muse