False Economic Rebound

The economy has expanded by 3.1% and this appears to be good news. Except that this was the report in July 2008 when growth figures were first announced for the 2nd quarter of 2008. They later were revised downward.


And what stoked the economy plus 3.1% when the 1st quarter of 2008 was negative 1%?


It was the Bush stimulus. Remember the rebate checks issued to taxpayers in May 2008?


Yet the effect of those rebates lasted only a brief period, while we will be paying interest on that debt payout for decades to come as it is folded into the national debt. Meanwhile the following four quarters (3rd quarter 2008 through 2nd quarter 2009) were negative, bottoming out at negative 6.4% in the 1st quarter of 2009.


Now we have reports that the economy grew 3.5% in the 3rd quarter of 2009 and this again sounds like a good number. Yet what stimulated that figure?


More taxpayer money, including the wasteful and temporary Cash for Clunkers program and other government spending. In the 3rd quarter investments in residential real estate grew what seemed like an impressive 23% with the housing market getting a boost from the $8,000 federal tax credit for first-time homebuyers. So housing also was helped largely by more federal deficit spending.


And this too is artificial and will need to be paid for through federal debt service and higher taxes. And this current growth never will be sustained unless there is more and more government spending, all of which will drag down future growth, increase debt and push up taxes and interest rates.   Because you can always afford a vacation if you put it on your credit card, just as the 3.5% growth rate in the 3rd quarter 2009 was put on our national credit card.


President Obama is digging himself a huge hole that he will never be able to get out of. And this is the socialist debt hole that we see all over the developed world in very liberal places like Europe, Japan, Canada and Australia, leading to anemic growth and high unemployment rates for decades at a time. Japan has been in a serious recession since 1990.


Christina Romer, chairman of the White House’s Council of Economic Advisors, said of the 3.5% growth figure that “this welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered.” This shows that there is great caution in the Obama administration about getting too cheery about growth. Because there are so many pitfalls in the Obama agenda that unemployment is expected to rise over 10% by the end of the year and will stay there for a long time.


Ronald Reagan faced similar circumstances in 1982 with high unemployment and exploding deficits. But by November 1984 he was re-elected in a landslide because the economy was well on its way to recovery.


The reason? Because Reagan was in the process of bringing tax rates down on businesses and on wealthy Americans, while Obama is raising them. Because president Bush’s 35% federal tax rate on wealthy Americans is going to expire soon and will rise to almost 40%. On top of that, many state and local taxes, along with ‘millionaire taxes’ and surtaxes are going to push total tax rates on wealthy Americans over 60%. This will produce stagnation as more and more wealth is drawn out of the private economy.


Today in New York state, for instance, ever-increasing tax rates are being blamed for an exodus of wealth, confirming what conservatives always have warned about – that ever-increasing tax rates eventually will produce less and less revenue for the government because people will leave rather than pay the higher rates.


When New York governor David Paterson said that he would have sought to raise tax rates on rich people sooner if he had known that wealthy conservative Rush Limbaugh would pull out of his New York city residence, it certainly felt good to say it about a political nemesis. But ultimately it is counterproductive.


In New York state, once one of the richest places in the world, more than 1.5 million state residents left to go to other states from 2000 to 2008, according to a report from the Empire Center for New York State Policy. The vast majority – 1.1 million migrants – left New York City, meaning one out of seven city taxpayers moved out.


“The Empire State is being drained of an invaluable resource – people,” the report said. And while wealthier people are leaving, they are being replaced by lower-income newcomers who will contribute much less in taxes.


New York City suffered the biggest loss of taxable income in the state. The average Manhattan taxpayer who left the state earned $93,264 a year while the average newcomer to Manhattan earned only $72,726, according to the report.


In 2006-2007, the “migration flow” out of New York to other states amounted to a loss of $4.3 billion, said the Center which used US Census reports combined with Internal Revenue Service data.


The center blames the exodus on the state’s high cost of living and high taxes. But much of the high cost of living is directly attributable to high taxes which are blended into the cost of everything, while those taxes are all man-made and can be controlled. But increasingly left-wing New York state has no inclination to control taxes but seems to be on a trajectory of increases just as Obama is nationally.


The entire nation faces a fate like New York‘s unless major reforms are made in Obama policy. America can no longer drift along on past glories and deficit spending. This Potemkin Economic Rebound simply is not sustainable.


Please visit my website at www.nikitas3.com for more. You can print out for free my book, Right Is Right, which explains why only conservatism can maintain our freedom and prosperity.