It’s the Economy, Stupid – And the GOP Hasn’t a Clue
Only one thing seems certain in this crazy election year, writes Tom Blumer of BizzyBlog: the overriding issue will be the economy. So it's a problem that the remaining Republican candidates have not exactly distinguished themselves in this area.
Super Tuesday appears to have resolved very little, except that political junkies relishing the prospect of a brokered convention may actually get their way — twice.
Government and other reports during the past week relating to growth and employment should ensure that the economy will be a major topic of discussion during the remaining primaries.
First came Wednesday’s GDP report for the fourth quarter of 2007. I thought, based on positive reports on employment and business activity that preceded it, that growth might come in as high as 3%. Oops — try 0.6%. I think that revisions to fourth quarter GDP growth will probably be upward, and lead to a final number as high as 1.5%. But even if that happens, the economy’s growth during the quarter was a major disappointment after the two stellar quarters that preceded it.
Then on Friday, the Employment Situation Report from the Bureau of Labor Statistics came in mixed. The good news was that the unemployment rate dropped to 4.9% from 5.0% the previous month, reversing a slow upward trend throughout the second half of 2007. But that good news was accompanied by the first reported loss of jobs (-17,000) in the economy in over 4 1/2 years.
The pain of the employment report was alleviated a bit 90 minutes later Friday morning, when the Institute for Supply Management (ISM) released its January Manufacturing Index, covering about 15% of the economy. Surprising just about everyone, the index came in at 50.7, indicating that manufacturing was in expansion mode, if only slightly, during the month (any reading above 50 indicates expansion), after slipping into contraction for the first time in nearly a year in December.
With the three reports just described pointing towards a lukewarm but not necessarily troublesome situation, economists were anxious to see Tuesday’s Non-Manufacturing Index (NMI) from ISM, which covers most of the rest of the economy, to get the last word on where we are.
The word: Ouch. The services sector went from a decent expansion in December to a very decided contraction. The report’s Business Activity Index dropped from 54.4 to an anemic 41.9. That drop was the largest on record in the 11 or so years of the index’s existence. While it’s possible that the drop is a one-month anomaly, I doubt it.
With the economy slowing and a now-legitimate possibility of a recession, you would hope that at least one of the GOP’s remaining viable candidates might have a credible platform for addressing the challenges. It appears not. (Both Democratic candidates appear so determined to raise taxes and implement nationalized health care that their claims for having any genuine ideas for improving the economy cannot be taken seriously).
John McCain has taken a lot of deserved heat for not supporting the Bush tax cuts in 2003. However, he does say he would now make them permanent. But anyone who thinks that he would fight for the kind of further tax reduction that would truly stimulate the economy into long-term growth mode again is probably doomed to disappointment. His health care plan, while at least not statist, is not exactly a model of coherence either.
Mike Huckabee, who after his Super Tuesday performance has to be seen as McCain’s leading challenger, has a record of raising taxes and fees while he was governor of Arkansas, and of personal opportunism both while he was in office and shortly thereafter. He has attempted to allay concerns about his fiscal bona fides by advocating the “Fair Tax,” which is, in effect, a high-rate national sales tax designed to completely replace the income tax and many other smaller taxes. I believe that Huckabee’s Fair Tax adoption is opportunistic, insincere, and fails to address the reality that as president he would not get any kind of congressional cooperation. What are you going to do in the real world, Mike?
I referred to McCain’s mishmash of health care ideas earlier. You might expect that Mitt Romney, McCain’s remaining credible challenger, given his business and management background and his four years of experience governing Massachusetts, would have something to offer for health care and the economy as a whole. Unfortunately, whatever Romney says will be drowned out between now and convention time by what he has done. He imposed a “universal” health care plan on the Bay State in his final year before he left office that naturally led to skyrocketing and out-of-control costs. It will serve as an ongoing embarrassment to a man who should have known better than to have even tried. Voters will correctly see any attempt by Romney to further distance himself from his Bay State blowup as a demonstration of irresponsibility.
The GOP’s last best hope may be to knock some sense into these guys if and when they attend CPAC. Attendees should have their suggestions and arguments at the ready.
Tom Blumer is a CPA based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com.
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22 Comments
1. Jay:Thanks to the “free trade fetishists”, our manufacturing industry is all but gone. Gone to China and Mexico (who not only have our jobs but continue to sends millions of their people here to take still other jobs). Nice neighbors, eh?
No manufacturing = no independent country.
Feb 7, 2008 - 4:52 am 2. David Thomson:“…you would hope that at least one of the GOP’s remaining viable candidates might have a credible platform for addressing the challenges. It appears not.”
The problem is that the Leftist MSM has convinced the majority of Americans that only socialist policies will improve the economy. Thus, there is little the GOP can do to persuade them otherwise. This is why the country is in such incredible danger. The typical voter is simply not listening to reason. Our country is very close to being destroyed.
Feb 7, 2008 - 5:50 am 3. Wolf Pangloss:Free trade fetishists are not responsible for driving manufacturing out of the USA. That responsibility falls at the feet of NIMBY environmentalist lawsuits, nanny-state interference, and the demonization of manufacturing via zoning and other bigoted laws. It’s the class-warfare that has driven production out of the USA, not the free trade.
Feb 7, 2008 - 7:28 am 4. A. N. Pierson:“Super Tuesday appears to have resolved very little, except that political junkies relishing the prospect of a brokered convention may actually get their way – twice.”
Well, you just discredited yourself in the first sentence. John McCain won 50 of 53 polling districts in California and now has way in excess of 700 delegates. It’s over.
Also, insofar as “It’s the economy, stupid…” Maybe until the next terror attack.
Feb 7, 2008 - 8:17 am 5. Jay:Sorry Wolf, you’re partly right but so am I. Free trade deals with other countries allows them to flood our market with goods that are not taxed yet our goods sent overseas are heavily taxed via the phony Value Added Tax which is a substitute for a tariff. Other nation’s companies are thus subsidized by their governments and tailored to export to the US.
Furthermore, our government’s policies encourage the off-shoring of industry which leaves our nation a shell – a shell of restaurants, hairshops and lawn-care services – most of which employ illegal labor by illegal aliens. Nice racket, eh?
A country that can not make steel, automobiles, airplanes, boats, trains, tool-making, etc. is not long going to be a free, independent nation.
Feb 7, 2008 - 8:23 am 6. mishu:Who cares about making steel? There are so many other alternatives out there that fill that role now that are lighter, and longer lasting. The United States is not alone in making less steel. Just about every industrialized nation makes less steel. Source:
http://en.wikipedia.org/wiki/Global_steel_industry_trends
It’s called creative destruction. Pretty smart man that Adam Smith.
Feb 7, 2008 - 10:36 am 7. Bob Miller:So, anybody, enlighten us now:
Who DOES have a workable action (or inaction) plan to do the best for our economy? And what, pray tell, is that plan?
I’ve started to read “The Forgotten Man” by Amity Shlaes, and am getting the impression that, on the whole, the interventions by both Herbert Hoover and FDR during the Great Depression did more harm than good.
Feb 7, 2008 - 11:33 am 8. David Thomson:“The Forgotten Man” by Amity Shlaes”
This is a very important book. She indirectly takes to task the shabby work of Arthur M. Schlesinger, Jr. that dominates most peoples views on the New Deal and the Great Depression. Unfortunately, the damage has already been done. Voters like Jay are in the majority. The polling data shows this clearly. I am convinced that the best economic policy would include dropping taxes on corporations and wealthy people. The Democrats, sadly, will then accuse the GOP of screwing the little folks on behalf of the fat cats.
Feb 7, 2008 - 11:57 am 9. Big D:Oh! My! Whatever shall we (read: our government) do?
How about nothing? While lower taxes would help the economy in general, it’s amazing how self-perpetuating this cycle is. Every few years, the collective psyche gets too much “irrational exuberance” built up, something (Housing? Tech? S&Ls?) that had been pushed beyond economic sense collapses, and a general retrenchment sets in. Sometimes it results in a short recession, sometimes not. They key factor is, that during this period, expectations and plans change, and people tend to get back to basics. Once things settle down again, and the worst performers have been flushed out of the market, the economy begins to recover and suddenly (depending on whether the press likes the President or not) we’re either in a magnificent boom or a “jobless recovery”, which extends, until people forget the lessons they learned the last time and start building up that “irrational exuberance” again…
In short, it’s called a business cycle. It’s a product, like most economic issues, of mass psychology, hopes, dreams, and sweat. Let people work it out, keep them from getting too discouraged to do so, and they’ll take care of it.
Feb 7, 2008 - 1:19 pm 10. juandos:Well isn’t this just the cutest: “Thanks to the “free trade fetishists”, our manufacturing industry is all but gone“…
Hmmm, is this yet another case MSM kool-aid drinker just parrotting the fairy tales?
Off shore manufacturing couldn’t possibly be the result of excessive government regulation, could it?
Note the following:
Government is costing us more than the taxes we see,
because it’s difficult to see the extra cost of complying with government regulations.
Complying with government regulations consumes $1.4 Trillion
($1,028 billion federal mandates, $343 billion state & local government mandates)
- 14.9% of the economy – $4,680 per man, woman and child -
- adding this regulation cost to $13,568 government spending per person
equates to $18,248 per person of government impact -
AND – compliance costs small business more per employee than big business -
AND – this does not count compliance cost impacts of the Patriot Act and Sarbanes-Oxley regulations
- federal expenditures on regulatory activity increased 2.7 times faster than economic growth since 1960 -
Feb 7, 2008 - 1:26 pm 11. Jeff:- at 14% per year compounded -
(http://mwhodges.home.att.net/regulation.htm)
As much as I might like to see further tax cuts (little as they would likely affect me in my income bracket), I do have to admit that it does cost something to run the government.
I would prefer that we change our focus to cutting the budget – and thus hopefully the deficit – instead.
But without raising taxes – let me make that quite clear.
Feb 7, 2008 - 1:46 pm 12. Sparky:What would unemployment be if we did not have all the illegals here?
Feb 7, 2008 - 1:47 pm 13. mishu:About the same or more Sparky.
Feb 7, 2008 - 2:46 pm 14. Gabriel:Lets face it, the looters and moochers appear to have won the day. The GOP doesn’t have a John Galt to champion them, nor will they ever given their own leftward tilt and feeding at the trough of socialist big government programs.
A dark ages for this country approaches. My big question is, where can I move to?
Feb 7, 2008 - 3:33 pm 15. olddeadmeat:I suggest you start by reading the various blogs on the economy.
A good place to find the links is at ml-implode.com – links on the lower right.
Start with the Big Picture blog, then Calculated Risk and take your pick of the rest. Several are run by guys who spend all their time thinking about the economy and investing. Some run investment funds, some are just journalists or private investors.
Short answer – it’s a mix of the S&L crisis and Enron, but the people playing games were the big banks and the private rating agencies. They took risky mortgages, sliced them up and resold them as AAA investments – stuff as reliable as gov’t treasuries and the best municipal debt.
Since they made money selling the debt and didn’t keep the risks associated with the loan, they would take any loan, no matter how stupid.
Like say, $500K option-ARM mortgages for 2 bedroom shacks borrowed by assistant managers at McDonald’.
Now, home prices are going down, it’s a national margin call, and the banks literally don’t have enough cash to cover their losses.
So credit is becoming ever tougher to get.
Here’s the cure:
Let the recession happen. Prices have to fall to correct levels. Some banks need to fail. Capitalism needs risks as well as rewards to work.
And balance the budget, pretty soon, it’s going to be very hard to borrow any money from anyone.
Feb 7, 2008 - 4:36 pm 16. OmegaPaladin:olddeadmeat,
Are you willing to lose your job if your favored recession occurs?
Feb 7, 2008 - 9:24 pm 17. olddeadmeat:OmegaPaladin:
I am a struggling small business owner. The recession is coming whether I want it or not, and it could very possibly put me under.
It’s not my “favored” recession.
It’s pretty bloody obvious to anyone who takes the time to look at the data and look at the behavior of all the players. The MSM is pretty much clueless/useless. Ex: they print NAR press releases as if they were news . Almost every month last year they were telling us the housing market hit bottom and next month the market will pick up. Just how many bottoms does a crash have?
Banks are desperately hoarding cash. Fund managers are predicting more huge losses in the financial sector. Consumers are using gift cards to buy food and diapers. An entire business model (wholesale mortgage lenders) has pretty much died.
And Bernanke didn’t drop rates 1 1/4 points in less than a month because things are peachy.
Feb 8, 2008 - 5:43 am 18. Josh:I’m most certainly not an economic expert. I don’t understand most of the economic language but I wasn’t born yesterday either. About the housing crisis I know one or two things. “A fool and his money are soon parted,” and greed and stupidity is a bad combination. Both apply here. I bought a house during the “boom”. Lenders were trying to throw $300,000 at me at 1% interest. (Greed) I didn’t buy into their hyped salesmen’s “great opportunity” lie. Even with my limited knowledge of banking I was able to read and understand the contract. Millions bought into it and got screwed claiming now that they didn’t understand the contract. (stupidity) I took a 30 year fixed at 5.5% and now I look like a genius. (no fool and money and house not departed) I know this is just one factor but I don’t think the GOP had anything to do with it. Spoiled, ignorant Americans buying way beyond their means caused it.
Feb 8, 2008 - 7:58 am 19. Kevin:If people think the economy is in the crapper now, or rapidly going down the drain, wait. The Dems’ idea of economic stimulus definitely will stimulate the economy right into the can. The best thing the government can do is when the Fed adjusts their rates, up or down. Outside of that, everything else is basically window dressing as far as rebates go. The best thing that Congress and any President can do is to stand aside, don’t pass idiotic stimulus packages and let the cycle run its course.
Feb 8, 2008 - 11:25 am 20. Richard Layman:Fiscal Folly?
The progressive federal income tax was an good idea about ninety years ago, but is it still serving us well in a global economy? Right now, all taxes on wage earners and investors in America must be passed on to consumers of American goods and services. That is where the money comes from to run our country. Where the money comes from might just be more important than who pays the taxes.
If a job is out-sourced our government does not benefit with income taxes or with funds going into Social Security. Imported items have the taxes of the truck drivers and store clerks built into their prices, but no American taxes from the workers that produced the items.
There is enough money out there to save Social Security, Medicare and provide a multitude of social services, but it is in the wrong places.
Businesses that are not labor intensive generate little tax revenue. Yet they create huge profits and can pay enormous salaries. Movies, TV, sports, software, CD’s and drugs are all in this category. Consider Bill Gates. He has much of his software written in India and has a machine put it on a disk and so far little has gone into American taxes or Social Security.
American businesses would be much more competitive worldwide if they did not have to include the expenses of their workers’ taxes, Social Security and healthcare in their prices.
There is a bill, (Fair Tax) currently cosponsored by about sixty congressmen, that contains ideas that should interest both liberals and conservatives. These ideas could remedy many of our nation’s problems. The bill is touted as a progressive sales tax and would eliminate the IRS and other taxes including Social Security taxes. It is progressive in that every person or family unit receives a monthly check to cover all taxes up to the poverty level. So only nonessentials are taxed. These ideas deserve serious consideration. The bill, as presently written, has some major flaws.
A 30% sales tax would force sellers to lower their prices to attract buyers. This would be somewhat offset by lower labor costs and taxes. Imported goods would be taxed as well as our own and income would be derived from products produced by outsourced jobs
The American government would become a partner in every business.
All industries would then start contributing their share of the costs of our infrastructure, from which they benefit and owe their existence. Even thieves, prostitutes and undocumented workers and visitors to the US would now contribute.
Our government would get its funds off the top and there would be less money available to pay outlandish salaries to athletes, rock stars and CEO’s, who can hire CPA’s and tax lawyers to exploit loopholes. Social Security and Medicare would be saved and maybe even health care could be funded.
An added benefit would be the elimination of the IRS. Imagine, no more tax forms. The tens of thousands of regulations and IRS audits would be no more. Think about the hours and dollars that are now wasted. Our lives would be so much simpler.
Early in our nations history states were not allowed to put tariffs on goods produced in another state. So all could enjoy the benefits of free trade. Most states then wisely resorted to sales taxes to receive benefit from the sale of goods purchased in their state. Perhaps it is time, in a global economy, for our nation to do the same.
In our present economic circumstances we should consider these ideas that increase funding from imported items, outsourced jobs and non-labor intensive industries. They may enable us to fund our entitlement programs and needed infrastructure improvements, while enjoying life without the IRS. Does it make any sense at all to tax our own products and not tax things produced elsewhere?
Ralph R. Layman Sr.
Feb 9, 2008 - 10:48 am 21. Richard Layman:6205 Mineral Point Road
Madison, WI 53705
Heritage511@yahoo.com
Fiscal Folly?
The progressive federal income tax was an good idea about ninety years ago, but is it still serving us well in a global economy? Right now, all taxes on wage earners and investors in America must be passed on to consumers of American goods and services. That is where the money comes from to run our country. Where the money comes from might just be more important than who pays the taxes.
If a job is out-sourced our government does not benefit with income taxes or with funds going into Social Security. Imported items have the taxes of the truck drivers and store clerks built into their prices, but no American taxes from the workers that produced the items.
There is enough money out there to save Social Security, Medicare and provide a multitude of social services, but it is in the wrong places.
Businesses that are not labor intensive generate little tax revenue. Yet they create huge profits and can pay enormous salaries. Movies, TV, sports, software, CD’s and drugs are all in this category. Consider Bill Gates. He has much of his software written in India and has a machine put it on a disk and so far little has gone into American taxes or Social Security.
American businesses would be much more competitive worldwide if they did not have to include the expenses of their workers’ taxes, Social Security and healthcare in their prices.
There is a bill, (Fair Tax) currently cosponsored by about sixty congressmen, that contains ideas that should interest both liberals and conservatives. These ideas could remedy many of our nation’s problems. The bill is touted as a progressive sales tax and would eliminate the IRS and other taxes including Social Security taxes. It is progressive in that every person or family unit receives a monthly check to cover all taxes up to the poverty level. So only nonessentials are taxed. These ideas deserve serious consideration. The bill, as presently written, has some major flaws.
A 30% sales tax would force sellers to lower their prices to attract buyers. This would be somewhat offset by lower labor costs and taxes. Imported goods would be taxed as well as our own and income would be derived from products produced by outsourced jobs
The American government would become a partner in every business.
All industries would then start contributing their share of the costs of our infrastructure, from which they benefit and owe their existence. Even thieves, prostitutes and undocumented workers and visitors to the US would now contribute.
Our government would get its funds off the top and there would be less money available to pay outlandish salaries to athletes, rock stars and CEO’s, who can hire CPA’s and tax lawyers to exploit loopholes. Social Security and Medicare would be saved and maybe even health care could be funded.
An added benefit would be the elimination of the IRS. Imagine, no more tax forms. The tens of thousands of regulations and IRS audits would be no more. Think about the hours and dollars that are now wasted. Our lives would be so much simpler.
Early in our nations history states were not allowed to put tariffs on goods produced in another state. So all could enjoy the benefits of free trade. Most states then wisely resorted to sales taxes to receive benefit from the sale of goods purchased in their state. Perhaps it is time, in a global economy, for our nation to do the same.
In our present economic circumstances we should consider these ideas that increase funding from imported items, outsourced jobs and non-labor intensive industries. They may enable us to fund our entitlement programs and needed infrastructure improvements, while enjoying life without the IRS. Does it make any sense at all to tax our own products and not tax things produced elsewhere?
Ralph R. Layman Sr.
Feb 9, 2008 - 1:39 pm 22. Smokey:6205 Mineral Point Road
Madison, WI 53705
Heritage511@yahoo.com
Mr Layman, I agree with most of your post. But two things about the Fair Tax really bother me: what, exactly, would stop Congress from raising your 30% sales tax to 31% a couple of years down the road? Then to 32%, 34%, 40%? Just like they do with postage rates?
And: what would a 30%+ sales tax do to our consumer-fueled economy?
Because I remember the economy in the 1970’s and 1980’s. Unemployment approached 10% – for years at a time. Inflation was running in double-digits. Interest rates were astronomical: the GI Bill for home purchases was 17 1/2%. A home purchase with an FHA loan was at an 18 1/2% interest rate. Stagflation bogged down the entire economy. Stories in the media routinely reported such items as Ph.D’s picking ferns for florists in Oregon, and driving cabs in NYC.
The economy could hardly be any better than it is today. Home loans are under 6%. Unemployment at about 5%. Inflation is extremely low by historical standards.
About 99.9% of the hand-wringing comes directly from the media, who use their propaganda organs to constantly tell Americans how bad things are. They have an agenda.
But the economy is, in fact, in excellent shape. Some of us have lived through a crappy economy; we know when we’re being lied to.
Feb 10, 2008 - 5:29 pm