If things are so bad, why are they so good?

If things are so bad, why are they so good?

With all the gloom coming out of Wall Street, the Democrats on the campaign trail, and the mainstream media, a remarkable thing just happened: Real gross domestic product, the best summary report of the American economy, came in at a breathtaking 3.9 percent annual rate for the third quarter. In fact, following the 3.8 percent growth rate for the second quarter, the U.S. economy has posted its strongest quarterly growth in four years. The economy actually appears to be speeding up, following the relatively sluggish performance of the prior 18 months.

On top of this, the inflation rate is actually slowing down. The consumer spending deflator is reading 2.1 percent for the past year, compared to over 3 percent six quarters ago. The core inflation rate is down to 1.9 percent, below the Fed’s 2 percent target.

Even employment is holding its own. According to Automatic Data Processing’s private employment survey, which showed its strongest gain in four months, October looks like it will produce about 125,000 new jobs.

Meanwhile, rising exports of American goods and services are booming to such an extent that the deep housing recession is being cancelled out. And while many continue to predict a consumer collapse because of falling home prices and tighter credit, after-tax inflation-adjusted income is 4.1 percent ahead of last year, for a $344 billion gain, while the purchase cost of energy prices are flat. The little noticed factoid is that consumer energy use per unit of GDP has actually fallen by more than 50 percent in recent decades.

Again: If things are so bad, why are they so good?

The stock market roared after the Federal Reserve cut its target rate on Wednesday by 25 basis points to 4.5 percent. The rate cut was a small insurance policy, just in case the subprime credit crunch and the housing downturn take a larger toll on the economy.

But listening to the Democratic presidential debate on Tuesday, you’d think it was 1929 all over again. The litany of scare-talk complaints includes China trade unfairness, globalization, immigration, income inequality, stagnant wages, a shrinking middle class, the sinking dollar, and high oil prices.

Yes, there is home deflation on Main Street and loan deflation on Wall Street. It will continue. But what about the rest of the story? When you listen to the hedge-fund short-sellers and the liberal politicians as they attempt to discredit the Bush economic boom, you could almost fall for their bear-market seduction. But the seductress turns out to be an economic harlot — not a beautiful woman.

The true message of the strong economy is that we’re virtually guaranteed of a Goldilocks soft landing or better — and certainly not a recession.

It’s interesting that while the Bush tax cuts of 2003 continue to encourage investment and entrepreneurship, expanding national income and higher tax collections have brought the big bad budget deficit down to $160 billion, or roughly 1 percent of GDP. Using something called the primary deficit — which extracts net interest on the debt and can be used to measure fiscal stimulus on the economy — we actually have a 70 billion surplus.

These are all reasons why it would be foolhardy to embrace large-scale tax-hikes to allegedly fight the budget gap.

House tax chief Charlie Rangel’s great idea to reduce the corporate income tax is the first pro-growth tax-cut measure from a Democrat in many years, and hopefully his effort will spur a discussion of full-scale tax reform by the Republican and Democratic candidates. But looking to the rest of Rangel’s plan, there are ways to eliminate the alternative minimum tax that do not require big tax hikes on the most successful earners and investors.

For example, the Bush administration’s tax-reform panel, chaired by former senators Connie Mack and John Breaux, proposed a growth-and-investment plan with only three income-tax brackets of 15, 25, and 30 percent. The plan would repeal the AMT and reduce the corporate tax to 30 percent. Capital gains and dividends would remain at 15 percent.

Or there’s the new plan from Wisconsin House member Paul Ryan that would move to a 10 and 25 percent tax system while also eliminating the dreaded AMT.

In other words, there are a lot of ways to gently nudge tax rates lower while broadening the tax base that would keep the Bush boom going well into the future.

The print and broadcast media do not give President Bush much credit for his economic policies. But somehow I have to wonder whether low unemployment, strong growth, negligible inflation, and record stock markets do not deserve just a bit of praise.

It is still the greatest story never told.

21 Answers

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  • 1 decade ago
    Favorite Answer

    Everywhere I go there are traffic jams, even on weekends (I work in a major city during the week and live at my beach house on weekends year round). If things were so bad, I would think people would at least cut back on going to the beach in the off season, but tomorrow there will be a traffic jam when I leave work at 2PM. And all the cars seem to be huge, not to mention all the RVs and boats being towed behind them.

  • Anonymous
    1 decade ago

    The world economy is doing quite well at the moment and we are still going along with it.

    The war is borrowing money the tax payers will need to repay and the money is going to arms manufacturers, contractors, businesses such as Black Water doing what soldiers usually do and costing more than $1000 per day per employee. This is done to show a decrease in troops in Iraq for one reason.

    Oil is not flat. It is $96 per barrel now.

    The Bush administration has had to request an increase in the borrowing cap 5 times. Five times the federal government almost ran out of money. Congress had no choice but to allow further borrowing. Without a rise in the borrowing cap the government would fail to properly operate.

    Another reason for a burgeoning economy is that the dollar is failing. A low value dollar makes exports cheaper thus a rush of Canadian retail purchases and exports more affordable all over the world. A low dollar also keeps more Americans at home because foreign vacations have become more expensive. Therefor, more money spent at home.

    I agree that the claim of China's trade unfairness is wrong. We are finally moving them to a capitalist country and now we would scold them?

    There is no reason to reduce corporate taxes. They already get enough corporate welfare loopholes to support their incredible remuneration to their elite managers.

    The Bush Boom is a fiction.

  • lucy
    Lv 7
    1 decade ago

    i love all the input from everyone;

    some other thoughts; my husband is self-employed and barely surviving but has good months and bad prior to bush and maybe after;

    one of the perks of being self employed is that a lot of his expenses are deductible; ie car; being insurance, gas etc;

    there was 1 tax break he could have had and that was SUV; thankfully we never bought one since the cost of gas for a SUV is unbeliveable even with a tax break;

    unemployment; love hearing when they say is down; no one keeps track of all the people who are unemployed and not collecting unemployment; when benefits run out, they are still unemployed but not collecting benefits. the economy being what it is, they may not find work for almost a year; so after 6 months no longer on the number of unemployed;

    mortgages; years ago, lenders would only allow 2 to 3 times your salary; now the amount is almost endless; no one thinks that they lose their job or their pay does not increase with inflation they could lose their house; also the cost of utilites to heat or cool your house has skyrocketed;

    bankruptcy law is a joke; it was changed to protect the lenders, specifically the credit card industry who are slamming you with all of their offers and begging you to buy more or borrow more; no problem, when you try and file bankruptcy, you cannot discharge them anymore, but will pay them off for at least 5 years; most will say they deserve it and that might be true; but by that time the credit card companies will raise the interest rate to 29%, decrease the billing from 30 days to 20 and then tack on addtl fees; most will not negotiate to pay off since the new law protects them now;

    medical insurance; 47 million; people are losing their homes and their lifetime savings to pay if a catastropic illness happens; most states will not insure you if you have a pre-existing illness; even if you can go to the state for coverage there is a 100k liftetime benefit; say you are age 59 and have cancer, stroke or heart attack, that would wipe it out and you could lose everything waiting to get to age 65 to collect medicare;

    love the fact that the canadian dollar is worth more than the american dollar; i never thought that would happen; we use to go to canada once a year and the US dollar was worth about 25% more than the canadian dollar; i remember thinking that if i bought something for about $2, it only cost about $1.50 US; that was just a guess since it has been so long, but now the canadians can do the same with the US now; lol

    anyway we all have interesting conclusions;

  • LeAnne
    Lv 7
    1 decade ago

    All of the doom and gloom rhetoric will slow to a trickle as soon as there is a democrat in the Whitehouse. Sad, but true.

    On the down side, foreclosures are obviously up - and the blame can be two fold - the home owner who snatched up the windfall of refinancing an amount exceeding his current debt to get the extra cash and the mortgage companies that consistently loaned money with payments that exceeded the homeowners ability to repay. In one word, "greed."

    When banks were loaning the money - your ability to repay the loan was paramount to getting the loan in the first place - they simply weren't in the business of padding their coffers with repossessed home sales - and this simply isn't happening with the present herd of mortgage lenders. And, for what it's worth, one can hardly blame Bush for this mess.

    Tax cuts do work to increase the overall tax revenue - but don't try and tell a democrat that.

    I judge the economy on a micro-scale. How's my life on the home front. I am presently self-employed and business is very good. I can afford to eat out once in a while and the bills are getting paid. I am concerned with fuel prices and health care costs - but both of these concerns go back further than Bush's inauguration.

    When one considers the industrialization and competition from foreign countries and the total costs concerning the events of 9/11 and the ensuing war - it is truly amazing that this country is doing as well as it is.

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  • 1 decade ago

    Well lets see , under Bush , I managed to refinance my house , pay it off , buy homes for my kids , pay them off , I did not fall prey to credit cards , so I am now debt free ..the market went way up to an all time high , I cashed in , and re invested in other things , my savings and investing are making more than I make at about 125 k per year ....

    I am living large , I was not able to move out of my trailer until Clinton was out of the White House .....now my business is booming , I hired more Americans , ( not illegals ) ...

    as far as Zinger says , about foreclosures ...though it is sad so many are losing their homes , it is not a government problem ,,,,it is caused by the lenders getting greedy ....the worst part is from Stupid people , many of these people signed mortgage contracts before they did the math , and they did not read before they signed , ..didn't parents used to teach kids to never trust strangers ( Realtors would be a stranger ) after all a Realtor is their to make your money , not be a friend ...Naive stupidity .....they did not read the fine print ..even more stupid ...Lastly , what in the world made all these people buy a house , when they knew good ,and d@mn well , the only loans they could qualify for was a car title loan , why did they not realize there had to be a catch or trap if someone was going to give them a mortgage for 1 or 200 thousand dollars when they had such a bad credit score they could not even get financing at a used car lot ???

    Stupid buyers , and ignorance is no excuse ...I do not agree with Congress wanting to bail them out , you can not fix stupid , why bail them out ....

    If we get any tax hikes on income taxes I will have to lay off , and stop medical coverage , I will lay off up to 12 , keeping 4 , I would pay them a little more , but I would classify them as sub contractors , and they would get 1099 forms and pay the entire 30 something % of their taxes , instead of half that , because I have to pay the other half right now ...they would have to get their own insurance as well , just like they had to do when Bill Clinton was running things ....Right now , my gross profit is over 800k per year , minus taxes, payroll , operating cost , etc, I clear 125k to 200k per year , higher taxes cuts that in half ......

    I love Bush's tax cuts , they have allowed me to increase business hire, more workers and yes even pay more to the IRS due to expansions ....tax hikes , cut profits , cut jobs , and cuts Federal Revenue due to loss in profits from lost manpower......... how does that win for anyone ? when large comapnies lose profits , they raise prices to make up the difference , workers have to double the workload , for the same pay ...there is no win to higher taxes ..

  • Anonymous
    1 decade ago

    Even with another cut from the fed, the DOW dropped a few hundred points today. Record home foreclosures from a dozen or so states, another twelve thousand jobs being cut by Chrysler and on and on. The military industrial complex is keeping the economy propped up. Wait till the war ends, that President will look like another Jimmy Carter as inflation runs amok.

  • Anonymous
    1 decade ago

    Greatest story ever SOLD, you mean.

    The Outstanding Public Debt as of 01 Nov 2007 at 11:11:37 PM GMT is:

    The estimated population of the United States is 303,417,199

    so each citizen's share of this debt is $29,927.77.

    The National Debt has continued to increase an average of

    $1.44 billion per day since September 29, 2006!

    Who is going to pay this off. Temporary good news does not pay off the national debt, there Sparky.

  • 1 decade ago

    The President really has little to do with the economy. He does apoint the Chairman of the Federal Reserve, who does largely set monetary policy - but to an 8 year term, guaranteeing that he'll have to answer to a different president when his term is up. Congress controls fiscal policy. So, credit or blame for the economy shouldn't go to the president. It should go to Congress and the Fed, to the extent that thier interventionist policies work /at all/. Mostly, it should go to the market. But the market is an impersonal force, and you can't burn it in effigy or give it a nobel prize.

    ::shrug::

  • 1 decade ago

    With this war, the US has taken the world back to an unenlightened age. Protests both here and worldwide have given their opinion. Rarely can a president be taken out of office. Therefore we are just waiting for this time to pass....

  • Anonymous
    1 decade ago

    You must not have had to try to buy a loaf of bread or a gallon of gas in the past 3 years. Sure, the upper crust is making billions hand over fist. The economy is going fine for them. I'm going to struggle to make ends meet.

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