The Economy

Originally posted to Facebook on Thursday, June 16, 2016.

Admittedly, when I set out to post theses weekly updates, it was to educate, not persuade.  I really aimed to remain unbiased.  And, I think I did a good job for the first couple of issues.  Then Climate Change entered the mix, and my resolve to remain unbiased started to wain.  So, yes, I admit, my bias is beginning to show.  But, I still aim to remain objective and to deliver the most honest up to date information I can find.  I have spent a month on this week’s issue as opposed to a week and I really dug deep.  So, I hope at least someone will read it and learn something.

The economy.  The economy is a big issue for voters.  I have spent weeks researching this and trying to do it “right” which explains the delay in my weekly updates (which I’m sure left a hole in all 16 readers’ hearts).  I think, ultimately, everyone wants the same thing: money in their pockets to provide a quality of life for themselves and their families.  Republicans often cite the economy as their primary reason for voting Republican claiming that Democrats kill the economy with their free-wheeling socialist ways and out of control government spending.  Democrats often cite Republicans pandering to the top 1% as killers of the economy for the remaining 99%.  So, when we are talking about the economy, what are we really talking about and what is the current and historic state of the current United States economy?  Here is just a scratching of the surface of a very complex system.

First of all, the United States has the world’s largest national nominal economy as measured by GDP and 2nd largest in purchasing power.  The strength of an economy is measured by GDP.  The GDP (Gross Domestic Product) includes everything the U.S. produces by the people and the companies in the country, or our total output.  The GDP growth rate measures if an economy is growing more quickly or more slowly than the quarter before.  Ideally, the growth rate should be between 2-3%.  When the GDP growth rate turns negative, we enter a recession as we did in 2007.  During a recession income, employment, manufacturing, and retail sales drop in addition to GDP.  Healthy income, employment, manufacturing, retail sales, and GDP are signs of a healthy economy.    Unhealthy numbers are signs of an unhealthy economy.  Read here for some common causes of recession mostly caused by a loss of business and consumer confidence. If it stays negative long enough, we enter into a depression.

The bottom line is, a healthy economy is when the money is flowing freely through the country much like a healthy body has the blood flowing freely through the body.  Americans have money in their pockets with which they use to spend and invest and afford a comfortable lifestyle.  Businesses perform well and unemployment is low.
So, how is the US economy right now?  The U.S. Economy is in the midst of one of its longest growth spurts ever. It’s just not super impressive growth.  It only expanded .8% in the first quarter of 2016.  It expanded 2.4% in 2014 & 2015.  The top 5 presidents in terms of economic growth measured by GDP since World War II have been (in order) Kennedy (D), Johnson (D), Clinton (D), Reagan (R), Carter (D).  Some say that’s a result of good policy and some say it’s just a result of things out of presidential control or dumb luck.  It’s probably a combination of the two.

I will go into greater detail concerning jobs in a future post.  Briefly, I looked at a lot of data and breakdown by presidents.  In every chart and article I read, Clinton was the leader averaging 242,000 jobs per month and both Bushes had the lowest percentages.  Most presidents have created jobs regardless of party affiliation.  As of June 2016, there have been 75 straight months of private sector job growth.  However, of the 10 fastest growing jobs in the country, half of them pay less than $25,000 dollars a year.

What about unemployment?  Let’s start with Reagan.  In November of 1982, unemployment broke 10% for the first time since World War II.  By the time he left office, it was cut to half of that.  This started to rise half way through Bush’s term and topped out at 7.8% when he left office.  Clinton had a strong economy throughout his term and unemployment declined steadily ending up at around 4% when he left office in 2000.  When Bush left office in 2008 (during a recession) the unemployment rate was at its peak for his term at 7.8%.  The recession continued through the beginning of Obama’s presidency topping out at 10% in October of 2009.  It has been on a steady decline since the end of 2010.  In May of 2016, the unemployment rate was 4.7%

What about incomes?  That is a big part of the American economy.  In 1996, median income for a family was about $54,000.  In 2006, median income for an American family is about $54,000.  That’s not a typo.  Median incomes haven’t risen in 20 years.  Incomes for the middle and lower class aren’t growing.  The top is doing well.  The top 1% have had their incomes nearly triple in recent decades.  When politicians talk about income inequality, that is what they are talking about.

Personally, I like having more money in my pocket.  I really do.  And, I have benefited from the policies and circumstances of the last 8 years, and the amount of money I have has only increased.  I benefited from the 2% payroll tax cut in 2011 & 2012 as part of the Middle Class Tax Relief & Job Creation Act of 2012.  I also benefited from the Economic Stimulus Bill which gave Lauren and I an $8,000 first time homebuyer tax credit.  And, our home value is finally on the rise, an additional sign of a healthy economy.  Interest rates on my student loans have fallen (after a suffocating rise under the previous administration) and we have been able to refinance our house twice bringing our mortgage interest rate, and subsequently house payment, down even further.  As the world is pumping record amounts of oil, gas prices have gone down which leaves us with hundreds more in our pockets a year compared to 8 years ago.

Now, let’s get to one of the dirtiest of the 4 letter words: DEBT.  Debt is how much we owe as a result of accumulated deficits.  A deficit occurs when the government spends more than it takes in during a year.  The more this happens, the more the overall debt accumulates.  FACT:  the U.S. currently has over $19 trillion in debt.  The debt to GDP ratio has risen from 35% in 2006 to 75% now.  Why?  All that money the government spent to revive the economy after the Great Recession.  So, we’re out of recession and our economy is strengthening, but our debt is growing.  Compared to countries like Greece and Japan that have debt to GDP ratios of 200%, this doesn’t sound like much.  But it is undisputable that the US debt is rising.

So, how did we get here?  Honestly, I don’t think this is a partisan issue.  Both Clinton and Reagan invested in education, infrastructure, and non-military research which ultimately drive both economic growth and wage gains as a result of improvement in labor force skills and worker productivity.  Reagan managed to stabilize the deficit and Clinton actually had a budget surplus!  The only president to do so since World War II.  Bush and Obama have not maintained those investments.  Furthermore, the deficit exploded under Bush and has remained high under Obama.  Obama AND Bush have added more debt than any president since World War II.  Bush added slightly more debt, but not much more than Obama.  It is very close.  Much of this was related to paying for 2 wars and the economic stimulus to bring us out of the recession.  Obama has not gotten the debt under control, but he has restored economic growth and reduced unemployment.  Additionally, he has reduced the budget deficit each year he has been in office.

So, our economy is doing well, but how does the debt come into play and how do we fix it?  Left unchecked, this could lead to higher interest rates, a slower economy, a weaker job market, and higher taxes.  Growing the economy (which we are doing), reforming the tax code, and reducing spending are all ways to tackle the debt.  The debt does not need to go to zero to be healthy.  Economists have said anywhere from 40%-60% of our GDP being healthier.

Based on my weeks of research, here is my summary:  Bill Clinton was the economic master in terms of economic growth, jobs, unemployment, and the crown jewel: budget surplus.  George W. Bush’s presidency, marked with the attacks of September 11, two extremely expensive wars, and the housing crash sent us into a recession and added more debt than any president before him since World War II.  Obama inherited that economy and that debt.  He has turned the economy around in terms of growth, jobs, unemployment, and consumer confidence, but has not been able to bring the debt under control.
So, what are the plans of our candidates?

Clinton: When it comes to the economy, Clinton is primarily focused on raising incomes and fighting income inequality.  Her three primary tenets are

• Giving work families a raise and tax relief that helps them manage rising costs.
• Creating good-paying jobs and getting pay rising by investing in infrastructure, clean energy, and scientific and medical research to strengthen our economy and growth.
• Closing corporate tax loopholes and making the most fortunate pay their fair share.

Concerning tax cuts, she has proposed extending existing tax cuts to help deal with college costs and for cutting taxes for businesses that share profits with their employees.

Concerning our tax code, she supports ending the “carried interest” loophole that allows some financial managers to pay a lower tax rate than normal workers.  She also supports the “Buffet Rule” which ensures that no millionaire pays a tax rate lower than their secretary.

She believes in equal pay, paid leave, and affordable child care to help put more money in the pockets of Americans.

She believes in raising the minimum wage and supports the Obama administration’s expansion of overtime rules.

This is just a brief summary.  I plan to address jobs, infrastructure, small businesses, and tax reform in greater detail in future posts.So, how about the debt?

Hillary Clinton has been called the most fiscally conservative candidate in the entire 2016 presidential pool past and present.  The nonpartisan Committee for a Responsible Federal Budget calculates the net fiscal impact of her plans is pretty close to zero.  The price tag on her plans is $1.8 trillion over the next decade with an offset of $1.9 trillion in new revenues.She does not offer concrete plans for decreasing the debt and based on what I’ve read it would take a pretty extreme lifestyle change for all of us to do so, but here she is in her own words, “I think that our rising debt levels poses a national security threat. And it poses a national security threat in two ways. It undermines our capacity to act in our own interests and it does constrain us, where constraint may be undesirable. And it also sends a message of weakness internationally...I have this old-fashioned idea that, you know, you ought to look at the evidence and if you look at the evidence at the end of Bill Clinton’s two terms, we had the longest peace-time expansion in American history, with 22 million new jobs, a balanced budget and a surplus that would have paid off our national debt had they not been so rudely interrupted by the next administration.”

Trump: I find it interesting that Clinton’s plans are outlined in extraordinary written detail while Trump’s plans exist in the form of minute long videos.  Just sayin’.

I’ve sat through all of Trump’s videos on his website to try to work out his policies in his own words.  Here is where we are at.

In his “Making Deals with Congress” Video he says, “We’re going to reduce our taxes.  We’re going to get the economy going.”  He does not go into any greater detail on how.

In his video entitled, “The Economy” he says that we are going to grow our economy as a result of everyone’s taxes going down.  He claims he will get rid of the $19 trillion dollars in debt but does not outline how whatsoever.

But, he does talk about funding for a lot of new things and unlike Clinton, he doesn’t explain how he is going to pay for any of it.  Luckily, the nonpartisan Committee for a Responsible Federal Budget has added up all of the proposals he has listed on his website so I don’t have to and so far estimate that he would increase the debt by 12.1 trillion dollars by 2026.  That is 129% of GDP.