Election year economics

[Tigermike 3,715]

A good read!

ENTERING THE ZONE

by Lawrence Kudlow

If we knew gross domestic product would run at 4 percent, industrial supply at record levels, basic inflation at less-than 1 percent, real disposable income at 3.5 percent, gold around $400 and the 10-year Treasury bond just above 4 percent -- and we knew these performance results would last for many years -- we would be very happy indeed.

Why then is everyone suggesting that 4 percent GDP -- the just-released mark for last year's fourth quarter -- represents an economic slowdown? It's all blather.

Not only is such alarmism uncalled for, but the basic components inside the GDP report are very favorable. The U.S. economy, spurred by a significantly lower tax bite on investment and financed by a moderately easy Fed, is now generating more investment and production than consumption. In other words, we're investing and producing more than we consume. Supply is growing faster than demand.

As a result, the excess supply (stated in growth terms) has actually reduced the core inflation rate even as overall economic growth is registering its best gain in many years. GDP for the second-half of 2003 was a stellar 6 percent, and the core price index for consumer spending eased to 0.7 percent in fourth quarter, compared to 1 percent in the third. We're in an inflationless expansion.

Supply-siders have long argued that growth solves inflation. The availability of more goods absorbs excess money -- especially when growth is well balanced on the shoulders of tax incentives that spur the investment side of the economy. Moreover, the rise in capital formation is contributing to outsized productivity and profit gains. This, in turn, will soon lead to rapid job creation.

Liberal economists seem not to recognize that capital is labor's best friend. Without new capital formation to spark profitable new businesses -- which create new jobs and a more efficient workforce (equipped with the latest technologies) -- labor prospects would be gloomy, not upbeat.

Critics in the media and on the campaign trail are skipping a beat as well when they say we're in a jobless recovery. They of course ignore the new culture of small-business self-employment that, in the Labor Department's house-to-house survey, registered 2 million new jobs last year (compared with a loss of 70,000 in big-business payrolls). But the addition of 2 million workers, in large part generated by higher take-home-pay rewards from lower individual tax rates, won't be counted in the government's payroll survey for 18 to 24 months.

One reason corporations have been slow to hire is that the non-entrepreneurial sector of the economy is only just now beginning to flower. Excluding government spending, real private-sector GDP has expanded at a 5.3 percent annual rate since the Bush tax cuts became law last spring. In the prior six quarters, private-sector growth averaged only 2.5 percent.

As a rule, the expansion of corporate payroll jobs requires that private GDP grow faster than output-per-hour productivity. Since the end of 1995, output-per-hour has increased at a 3.2 percent annual rate. So the 3 percent private-GDP gain in 2002 and early 2003 was insufficient to create new jobs. But the better-than-5-percent growth since then has exceeded the trend-rate of productivity. Hence, we are now entering the zone of new job creation -- right as the tax-cut-nurtured economy has shifted into high gear. Payroll jobs could rise by 2 million this year.

The significant pickup in U.S. exports abroad also attests to the country's renewed economic health. As the overly strong dollar has normalized, exports doubled to 19 percent in the fourth quarter compared to less than 9 percent in the third.

The heightened after-tax competitiveness of American business will continue to surprise everybody with record export volumes. As we produce more than we consume inside the U.S. economy, the excess production is being shipped abroad, spurring world economic growth.

Democrats may carp about short-run budget deficits, and the vast majority of media commentators are obsessed with these deficits, but the economy is healthy, the stock market is strong, trade flows are positive, and interest rates and inflation are at rock bottom. Let them carp and obsess.

Liberal Yale economist Ray Fair has perfected a model that predicts election outcomes. Recently, his model has been re-estimated by the well-respected Macroeconomic Advisors of St. Louis. Both models came within a few tenths of a percent of accurately predicting the popular vote in 2000. Taking into account today's strong economy, both predict a Bush victory with roughly 60 percent of the vote come November.

In electoral terms, it's the economy, not the budget deficit, that will decide November's presidential election. Bush's economy, and his re-election prospects, are in fine shape.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2004 CREATORS SYNDICATE, INC.

http://www.creators.com/opinion_show.cfm?columnsName=lku

[Tiger Al 0]

Democrats may carp about short-run budget deficits, and the vast majority of media commentators are obsessed with these deficits, but the economy is healthy, the stock market is strong, trade flows are positive, and interest rates and inflation are at rock bottom. Let them carp and obsess.

Mike, since you highlighted this I'm guessing you're a fan of deficits. What is it about a multi-billion deficit that is attractive to you? Why should I embrace this massive deficit as you do? How do I, as an individual, and we, as a country, benefit from it?

[Tigermike 3,715]

Mike, since you highlighted this I'm guessing you're a fan of deficits.

And once again you would be guessing wrong.

[Tiger Al 0]

Why did you highlight it, then?

[CarolinaTiger 0]

Democrats may carp about short-run budget deficits, and the vast majority of media commentators are obsessed with these deficits, but the economy is healthy, the stock market is strong, trade flows are positive, and interest rates and inflation are at rock bottom. Let them carp and obsess.

Mike, since you highlighted this I'm guessing you're a fan of deficits. What is it about a multi-billion deficit that is attractive to you? Why should I embrace this massive deficit as you do? How do I, as an individual, and we, as a country, benefit from it?

TA: are you against ANY deficit spending, or just this current deficit (and its magnitude)?

i'm not sure you're gonna get a lot of argument from people over the fact that the SIZE of this particular deficit is a little overwhelming (compared to previous ones), but deficit spending, in general, is not necessarily evil.... debt, like other things, are tools to be used.

what bothers me is what we're spending this $$ on! revamped medicare?

yet, here's the kicker, IMO: while a lot of people would say, "i think we should have a balanced budget...only spend what the gov't takes in". you are then left w/ the task of either raising taxes or cutting spending. there's a lot of spending i'd like to cut before taxes are raised...yet i'm sure there are others that'd feel the exact opposite.

ct

[Tiger Al 0]

No, I wouldn't say I'm totally opposed to any deficit spending whatsoever. And yes, the magnitude is my main bone of contention. I think this country worked hard and did some sacrificing to get the previous deficit turned around and I think that the surplus could've been put to better use.

I'll even buy that certain things happened to weaken the economy. 9/11, Afghanistan and Iraq, etc. But, to me, these things should've been a signal that any further surplus reduction was bad for the country. Wars cost money. The surplus could've paid for both of them instead of adding more to the national debt.

And you're right. Taxes will have to go up or government services will have to be cut. I believe that's what Bush had in mind anyway. The cutting of services, that is. If re-elected, I think you'll see serious strides taken to seriously dismantle or eliminate Social Security, the Federal Education dept., the EPA and a great many social programs (entitlements) all in the name of debt reduction.

[CarolinaTiger 0]

...

And you're right. Taxes will have to go up or government services will have to be cut. I believe that's what Bush had in mind anyway. The cutting of services, that is. If re-elected, I think you'll see serious strides taken to seriously dismantle or eliminate Social Security, the Federal Education dept., the EPA and a great many social programs (entitlements) all in the name of debt reduction.

do you (or anyone) actually know we had surpluses (or at least one year of one), or was it projected surpluses (surplusses?) that have now disappeared and turned into a deficit???

as far as bush cutting programs if he gets re-elected, i have no idea. his free-spending ways have been somewhat easily come by, AFAIC... time will tell.

overall, deficits used to bother me a lot...i couldn't understand WHY the gov't would consistently spend more than they brought in. yet, as i've aged, i've accepted deficits as a way of life...regardless of who's in charge.

a year or 2 of balance isn't too much to ask for, is it?

ct

[Tiger Al 0]

do you (or anyone) actually know we had surpluses (or at least one year of one), or was it projected surpluses (surplusses?) that have now disappeared and turned into a deficit???

They're both actual and projected, aren't they? Actual, in that we look back to last year or the year before and see how much revenue was collected vs. how much was paid out. Projected, in that you set your projected budget based on expected revenues. The latter can, and does, change as appropriations are debated, but then the projected surplus/deficit is adjusted accordingly.

As O'Reilly says, "Am I wrong?"

[CCTAU 3,536]

As O'Reilly says, "Am I wrong?"

99.99999999999999999%

of the time, YES

[Tigermike 3,715]

As O'Reilly says, "Am I wrong?"

99.99999999999999999%

of the time, YES

Touché!

[War Eagle 96 10]

or government services will have to be cut. I believe that's what Bush had in mind anyway. The cutting of services, that is. If re-elected, I think you'll see serious strides taken to seriously dismantle or eliminate Social Security, the Federal Education dept., the EPA and a great many social programs (entitlements) all in the name of debt reduction.

[AUloggerhead 2,516]

They're both actual and projected, aren't they? Actual, in that we look back to last year or the year before and see how much revenue was collected vs. how much was paid out. Projected, in that you set your projected budget based on expected revenues. ...

Carolina Tiger, I'm confused now. I thought you were an accounting prof? If anybody ought the difference between an an actual & a projected budget deficit/surplus, it should be you!

Politicians (of both stripes) love to project deficits/surplusses or tax cuts/hikes to butress their arguments for future policy. It's all bunk. No one has a clue to know what's going to happen in the future. Most importantly -- who'll get elected to congress & which party will be in control of the nation's purse strings.

I posted this link to the Congressional Budget Office data earlier but I'm not sure if anyone looked at it. From 1962 to 2003, our country has been running an actual budget deficit every year with the exception of 1969 and the consecutive years period 1998-2001. The annual debt has experienced a steady increase as a result. If you take Social Security off the ledger, then our country has only experienced an actual budget surplus in this time frame for the years 1999 & 2000.

Conclusion: budget deficits (for the US gubmint) are the norm, a surplus is an anomaly. According to this historical data, it's a risky proposition to think any particular congress is going to hold back on the pork-barrell spending.

[CarolinaTiger 0]

Carolina Tiger, I'm confused now. I thought you were an accounting prof? If anybody ought the difference between an an actual & a projected budget deficit/surplus, it should be you!

sorry for the confusion, logger... i only play an accounting prof on TV (j/k).

i am, indeed, an accounting prof, and i do indeed know the difference between actual & projected figures.

my question was this: did we actually have a year (or two) under clinton where surplusses existed. my guess was 'no', while i hadn't done any research on it.

the point of my asking was two-fold. we heard a lot of talk about 'surplusses' and balanced budgets during the latter part of clinton's 2nd term...but they were projections, not actual surplusses. fool's gold, IMO.

ct