Columnist.
It only took six years, but we're finally starting to see the U.S. economy kick into gear. This isn't a story of government-directed growth, but the opposite -- Washington's role in the economy starting to shrink after years of Obama administration activism. The private sector is starting to take over. Let's start with the positive news. Economic output soared in the third quarter at a rate of 5 percent. That comes on top of 4.6 percent growth in the second quarter. It appears that the U.S. economy has clawed out of its anemic 2 percent growth rut of the past five years and that we are now shifted into a higher gear with 3 percent-plus as the new normal.
It was 40 years ago this month that two of President Gerald Ford's top White House advisers, Dick Cheney and Don Rumsfeld, gathered for a steak dinner at the Two Continents restaurant in Washington with Wall Street Journal editorial writer Jude Wanniski and Arthur Laffer, former chief economist at the Office of Management and Budget. The United States was in the grip of a gut-wrenching recession, and Laffer lectured to his dinner companions that the federal government's 70 percent marginal tax rates were an economic toll booth slowing growth to a crawl. To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as "the Laffer Curve" in an article Wanniski wrote for the Public Interest magazine. (Wanniski would later grouse only half-jokingly that he should have called it the Wanniski Curve.)
For outrageous government scam of the year, it's hard to compete with the news of the supersized public-employee pensions in California. If you haven't already heard: In 2013, an assistant fire chief in Southern California collected a $983,319 pension last year. A police captain in Los Angeles received nearly $753,861. Talk about a golden parachute. The report on Golden State government pensions contains a list that runs pages and pages of hundreds of "public servants" who have hit the pension jackpot with annual pensions of a half-million a year. It's like they're playing the game "Who Wants to Be a Millionaire?" With taxpayer money. By some estimates, the unfunded pension liabilities in California have eclipsed $750 billion, which means that in a few years, residents will be paying their already-highest in the nation income and sales taxes not for roads, bridges, schools and public safety but for retired employees living like Daddy Warbucks.
The global warming brigades from around the world gathered last week at a United Nations climate change conference in Lima to save the planet. The nations from across the planet were supposed to link hands and all would agree to slash their green house gas emissions. Instead the conference was a complete dud. That might be putting it charitably. The BBC described the final agreement as "a weak and ineffectual compromise" while green groups complain that it actually "weakens international climate rules." It turns out most of the nations of the world see the climate change issue as merely a shake down opportunity to leverage more aid money from American taxpayers.
The legislative process in Washington is often compared to sausage making -- something you don't want to watch. But Jimmy Dean couldn't hold a candle to this Congress. Harry Reid's swan song is a 1,603 page budget that no one has read. Even worse is this year's so-called "tax extenders" bill. This has become an annual end-of-the-year Washington ritual with Congress waiting until the very last minute to approve dozens of expiring tax credits, deductions and loopholes. It is a microcosm of everything wrong with the way Congress operates. The "extenders" bill crams into one bill a mishmash of both necessary and absurd provisions of the tax code. All told, the annual price tag is roughly $50 billion. The package includes the valuable research and development tax credit and expensing for business equipment and other capital purchases. These create jobs and make American businesses more competitive.
Sorry, but this one you can't blame on either party. Yes, President Obama has made the problem much, much worse, but the scary truth is that the national debt keeps rising inexorably no matter who or which party is in office. That's the new law of American politics. When I first arrived in Washington in the early 1980s, the debt was roughly $2 trillion. This week, 30 years and five presidents later, the debt for the first time exceeded $18 trillion. We have been in the red in all but four of the last 40 years. That's $18,000,000,000,000. We all know that $18 million is a lot of money. This is $18 million times another million. The number is so gigantic we won't or can't try to fathom it.
If you think President Obama's unilateral exercise of executive powers granting near-blanket amnesty to illegal immigrants was an abuse of power, get a load of what this administration is doing over at the Environmental Protection Agency. The EPA's proposed Clean Power Plan regulations are the most expansive and economically disruptive rules in four decades from an agency that is notorious for its reckless disregard for the financial consequences of regulation under the Clean Air Act. The EPA's rule aims to reduce carbon-dioxide emissions from U.S. power plants by 30 percent. That's an enormous and costly burden on our power generating utilities. According to Energy Ventures Analysis, an energy research firm, the annual costs for residential, commercial and industrial energy customers in America would be about $173 billion higher in 2020 -- a 37 percent increase. Average annual household gas and power bills would increase by $680 or 35 percent.
Every poll of recent months shows Americans in a foul mood when it comes to the economy, their personal finances and the general direction of the nation. Most Americans think the great American Dream -- the idea that our children will achieve a standard of living higher than our own -- is dead. Others say that the environment is on a crash course with planetary devastation due to global warming. And if that doesn't do us in, the deadly virus Ebola may spread like a great plague over the earth. Not a lot to be thankful for. Or is there?
What is the price tag for the audacious Obamanomics experiment? How much has it all cost -- the bailouts, the debt, the stimulus plans, the printing of cheap money, Obamacare and all the rest? The answer to that question is just shy of $12 trillion. That's the sum of the $8.3 trillion added to the national debt since Sept. 15, 2008 (the day Lehman Brothers filed bankruptcy) for all the government spending and the $3.5 trillion of easy money flushed into the economy by the Federal Reserve through the initial monetary expansion -- QE1, QE2 and QE3. That's nearly $12,000,000,000,000. There's 12 zeroes in 12 trillion in case you're counting.
Republicans are rightly and predictably infuriated by Barack Obama's immigration executive action power play. What has been remarkable has been the silence from the left to President Obama granting legal status to some 5 million illegal immigrants. Such Nixonian abuses of White House power once elicited howls of protest from Democrats and their lap dogs in the media. But in this case of Obama defying voters, Congress and the Constitution in one fell swoop, the left has drifted between quiet unease and full-throttled support. What rank hypocrisy.
At a recent small dinner at the end of the fabulous Freedomfest gathering at the Paris Hotel in Las Vegas, major supply siders, libertarians, Tea Partiers, and traditional conservatives gathered to discuss strategies to regain political power in Washington. The libertarian faction fumed with the familiar complaint that the GOP will only win back young and female voters in 2016 by abandoning social issues like abortion and gay marriage -- which would in effect toss the evangelicals off the bus. Yet this has also become a common recommendation from the country-club Republicans who may not be members of the Tea Party movement but who write the big checks. "We must have a truce on the social issues; it is turning off voters" complains one prominent Wall Street financier who raises money for the party. By "truce," he means "surrender."
That sound you're hearing from across the Pacific is the Chinese rulers and Beijing laughing at us. President Obama and the "green" lobby actually think China is going to honor the new U.S.-China climate-change agreement that pushes both nations to reduce greenhouse-gas emissions over the next 15 years. China agreed to a "target" of deriving 20 percent of its energy needs from renewable resources "around" 2030. In exchange, Mr. Obama agreed that American families and businesses will aim to reduce carbon-dioxide emissions by at least 26 percent by 2025 from 2005 levels.
The midterm elections were a resounding mandate for tax reform. Across the country, in state races for governor and in federal races for Congress, voters sent a message they want lower taxes and a simplified tax code. Consider what happened in Kansas. Democrats had vowed that voters would hang tax-cutting Kansas Gov. Sam Brownback in effigy. He chopped tax rates and reduced tax burdens on small businesses in Kansas. The national media led by the New York Times pilloried the Brownback tax plan as a failure. Voters didn't see it that way, and he won a second term despite millions spent against him.
Japan is suffering another economic free fall. Following a second quarter GDP decline of an annualized 7.3 percent, this last quarter the economy in Tokyo sank again by another 1.6 percent. The land of the rising sun is looking a lot like the land of the setting sun. There are lessons here for U.S. policymakers if they are paying attention. Japan's economic plunge coincides with the disastrous blunder by Prime Minister Shinzo Abe's government to raise the nation's sales tax from 5 percent to 8 percent starting in April.
First, the good news. The economy is unmistakably regaining some of its mojo. We picked up another 214,000 jobs in October according to the Labor Department, and with revisions from previous months the number was closer to 250,000. Now THAT'S more like it. The stock market is on a raging bull ride too. We keep adding wealth - at least on paper. That's good for retirement funds, 401k plans and individual investors. On the jobs front, hiring was seen in nearly every occupation from construction to nursing, to business services and retail all the way down to burger flippers. But too many of the new jobs are low paying and that is a continued frustration for workers.
For months on end, Democrats crowed that voters were going to toss Kansas Gov. Sam Brownback and his tax-cutting agenda out of office. He was pounded in the media for the evident sin of following the Laffer-Moore model of income-tax rate reductions to stimulate growth and prosperity. This reform was denounced as a failure and "trickle-down economics." Voters don't want tax cuts, the Kansas City Star, New York Times and others hollered, hopefully. Except it didn't turn out that way. Not at all.
It was exactly 20 years ago, in November 1994, that Republicans under the maverick leadership of Newt Gingrich and his Contract with America took over the House of Representatives for the first time in nearly half a century. What may not be remembered is that the GOP sweep continued what became the longest and strongest stock market expansion in American history. Investors fell in love with the idea of a centrist Democrat, Bill Clinton, in the White House and a conservative Congress.
The magnitude of the GOP's tidal wave in Tuesday's election is just coming into focus. Just as in 1994's landslide election that gave Newt Gingrich and the GOP control of the U.S. House for the first time in half a century, the media are underplaying the rout and portraying the 2014 midterm as a temper tantrum on the part of the electorate. NBC said that it was a bad night to be an incumbent. No: It was a miserable night to have a D next to your name. Only one major Republican, Governor Tom Corbett of Pennsylvania, lost.
This may be a surprising statement from a bleary-eyed, number-crunching economist, but the best anti-poverty program in America may not be tax cuts, debt reduction or regulatory relief, but rather that old-fashioned institution called marriage. It turns out that poverty rates are very low among intact families and prevalent among homes without a father. Children who grow up in single-parent households are much more likely to face economic trouble as adults. Those who cheer divorce as a form of women's liberation, or who say that stigmatizing out-of-wedlock births is just right-wing sermonizing, just don't get this intertwined connection between two-parent households and economic success. Sociocultural factors like the decline of marriage are leading causes of the wealth gap and the stubborn poverty trap in many low-income neighborhoods. This isn't to say that children who grow up in broken homes can't succeed -- millions heroically do. It doesn't mean that every marriage was meant to be; many times, divorce is the only option.
The curse of the U.S. economy today is the downward trend in "take-home pay." This is the most crucial economic indicator for most Americans, but when President Obama said in a recent speech at Northwestern that nearly every economic measure shows improvement from five years ago, he conspicuously left this one out. Most workers' pay has not kept up with inflation for at least six years. Even as hiring picked up over the past year, wages and salaries have inched up by 2%, barely ahead of inflation. This probably explains why half of Americans say the recession never ended. They are experiencing what Federal Reserve Chair Janet Yellen last week described as "stagnant living standards for the majority."
