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Saturday, November 9, 2013
Economics/Business ... Politics ...

I hate to say this, but I actually agree with something that Senator Ted Cruz is saying. A recent article in Forbes quotes Cruz from a recent political dinner:

I think that we ought to be relentlessly, tirelessly, exclusively focused on growth, because every other priority we have depends on growth.

This article goes on with some math regarding the relative long-term impact on the federal budget from the spending cuts currently being urged by the GOP (i.e., going beyond the present sequestration and including some entitlement reductions, but not big enough to eliminate any major federal program); and from the tax increases currently being urged by the Obama Administration. I agree with the Forbes author’s conclusion: “in terms of impact on federal finances, both spending cuts and tax increases pale in comparison with economic growth”.

If the USA could get growth back up to steady 3% rate, versus the average 2% over the past 4 years, a lot of the stuff that we are arguing about today (i.e. entitlement and program spending cuts, plus reductions in the military; along with eliminating various tax deductions, ending corporate tax incentives and increasing taxes on the wealthy) wouldn’t seem so important anymore. If we could get back above 3.35% (which the US economy averaged from 1988 to 2000), many things would just fall into place without any major changes to our tax code or military spending or entitlement programs. Oh, and let’s not forget about job growth and getting the unemployment rate back below 5%. A whole lot of working people, and more importantly people both young and old who want to work but can’t find jobs right now, would feel a whole lot better in a 3+ growth situation.

Ted Cruz has a list of things that he prescribes to get economic growth rates going again, which I mostly disagree with. His main cause is to eliminate Obamacare, because he says that it overly burdens the new business enterprises that have become the main driver of economic growth and job creation in the US and which haven’t been as active since 2008 as in the 1990s and early 2000’s. (However, new business formation did seem to start picking up again in 2013, a hopeful sign that economic growth will finally start exceeding the 2% range before long.) It’s pretty clear that the main problem for new businesses has not been health insurance regulations, but instead the scarcity of loans and venture capital equity available for them during the “deleveraging” years following the financial crash of 2008. That situation may finally be abating, as financial institutions, banks and investor groups are taking on greater levels of financing risk once again.

I don’t think that Obamacare will spoil that party, but overall I am somewhat disappointed with the President’s appreciation of the importance of growth. I honestly wish that Obama had made the economy his main focus in 2008, instead of setting his sights on health care reform along with implementing a carbon tax to curb global warming. He was finally dissuaded from the latter, as he accepted that it wouldn’t be good to impose a major new financial burden during the midst of a serious recession (notwithstanding the long-term good it might do for the planet). But he kept pushing ahead on health care, with initially successful (if politically bridge-burning) results.

As I said, in the end I don’t think that Obamacare will sink the US economy, although it certainly will impose some “drag weight” due to increased regulatory burden and various tax increases. But it required a lot of political attention at a crucial time for the economy (2008-2009, as the economy bottomed out); and it is doing so again at another crucial time (today, just as the “deleveraging” in major financial institutions and households seems to be ending, and thus the economy has the chance to “fly again”, i.e. start growing at more than 3% while creating around a quarter million new jobs per month). Obama seemed more interested in having a social program legacy; he just hasn’t been all that interested or personally involved with creating innovative programs to help businesses grow, especially the small “gazelle” firms that have created around 65% of new jobs over the past 17 years. Such programs might have involved better ways to get capital to risky but promising start-up firms, possibly involving federal match dollars for private investment (avoiding the unpleasant political implications that went with the Solyndra failure); plus starting infrastructure banks and directing more federal investment into science research and technology development.

Had Obama put more political investment into growing the economy instead of building a social legacy, perhaps we would not be having all the arguments we are now having about “no longer being able to support our present level of entitlements” (mainly Social Security, Medicare and Medicaid, and now the Obamacare insurance subsidies and administration costs). Perhaps our political system wouldn’t presently be so dysfunctional, with its sequestrations, shut-downs and threats of default that make vigorous business and employment growth even harder to achieve (and thus causing something of a vicious cycle). But we are where we are, and Barack Obama is not going to change much between now and 2016. Despite all the uncertainties from the Obamacare roll-out (with all its unanticipated problems) and the Tea Party’s continuing fight-to-the-death tactics, the US might finally experience growth closer to 3% by 2015. That will help the nation to muddle through, even though growth surely would have been better for longer without all the political gridlock.

So it’s going to be up to the next President to really get us out of this mess. The Republicans will give the people a clear choice in 2016, i.e. a plan with nasty cuts to the entitlement programs that most of us either presently depend on or are planning for our future, as well as cuts in healthcare reform. Most voters won’t like this, but if the economy and federal budget is still an unsolved mess and unemployment is still above 6%, they might opt for a dose of bitter but seemingly necessary medicine. If Hilary and the Democrats simply go negative in response, if they simply criticize the draconian cuts being proposed by the G.O.(T) Party without a realistic alternative plan to fix both Washington and the real economic world that lies beyond its beltways, then get ready for President Christie (and VP Cruz).

The Democrats need to turn away from social planning for a while, and get down to the nitty-gritty of finding incentives and cooperative programs that spur growth while maintaining most or all of the present entitlement programs (perhaps with short-term cuts or delays that can be rescinded subject to economic growth targets being met — especially to all the Affordable Care Act bureaucratic machinery and financial provisions that probably still won’t be running right). Sure, the country needs universal health care, greenhouse gas reductions, alternative energy expansions, immigration reform, more and better education options, leveling of opportunity between the rich and the not-so-rich, and much other good stuff. But until we can afford it, it just makes things worse to start something that can’t be finished. Even if his methods are wrong, Ted Cruz is right — get the economic engine running again, before we argue about where the political car should go next.

◊   posted by Jim G @ 10:02 pm      

  1. Jim, I’m not sure if I can agree with even this statement of Ted Cruz. Maybe; but I’m not sure. Something always bothers me about the talk about “continued growth” – emphasis on “growth” when it comes to the economy.

    Somehow or other I don’t think the “continued” part of “growth” is realistic and/or practical. It always seems to me that somewhere along the line, the “growth” part will end up in the hands of the 1%. Maybe it’s the skeptic in me.

    I find myself thinking in terms of the TV program “Shark Tank”. I notice that often one of the “Sharks” will say something like: “You’ll make more money than you ever dreamed of” to someone he/she has just made a deal with. I find myself thinking, I’m sure the person *will* make more money that he/she ever dreamed of but probably not anywhere near as much as the “Shark” will make off the very product the “Shark” is investing in and that has been the idea and invention of a totally different person from the “Shark”.

    Past a certain point of “growth” in our capitalistic economy, it seems to me that continued “growth” would lead us to another form of economy – perhaps one based on helping the poor or distributing the wealth in some way. I find myself thinking of the primitive group I read about long ago who had as their way of “social climbing” how much a person could give to the rest of the community. Now wouldn’t *that* be a new approach to Capitalism. Somehow or other I just can’t see the “Sharks” taking that approach.

    I also think that you are right (if I’m reading you correctly or maybe I’m giving a different interpretation to your point) when you note that Obamacare may be a way of taking the focus off the economy and the recent serious depression the country has been through.

    I see that approach a *lot* in the Illinois Assembly who, rather than “fix”, for example, the pension problems of state and some city workers throughout the state, the assembly has elected to pass the gay marriage act. I’m not against the gay marriage act; and I’m sure those who are gay welcome this development in their lives. But I wonder if the passage of that bill was just a way of taking the focus off the economic problems of the state. And perhaps the Illinois Assembly got the idea from the Federal gov’t. While I certainly think Obamacare is an important thing for the 99%, it does seem to have taken the focus off the problems in Congress when it comes to the economy.

    As to whether or not the next president will “really get us out of this mess”: I find myself thinking of FDR back in the late 1930s/early 1940s. I’m sure Obama got his ideas of infrastructure repair and upkeep from FDR’s CCC (Civilian Conservation Corps) that worked similar to infrastructure upkeep.

    I noticed today an article in the Chicago Tribune showing the moment of people out of and into the city of Chicago. Interesting that in these economic times people are on the move. Several of the large migrations that took place in our own country (the movement to the West) took place during or right after a recession in the country. Is this a way to “fix” the economy? I doubt it.

    I tend to think that rather than wanting a quick fix to what has gone very wrong with our economy, it will take at least as many years to fix it as things were going wrong to cause it to implode (so to say). People want an immediate fix.

    In terms of “quick fixes”: Perhaps it is a good idea to take the focus off the economy for a while, think about other problems (such as Obamacare and gay marriage rights) and then come back to see if the thinking has improved or has come up with some new ideas. Maybe that approach is not such a bad idea after all. MCS

    Comment by Mary — November 10, 2013 @ 4:01 pm

  2. Jim, More tho’ts on Ted Cruz . . . I found this in John Katz’s blog:

    While his topic has nothing to do with Ted Cruz, he expresses much better what I was trying to say about “growth” in our economy. To wit, he says: “the whole world doesn’t have to be devoured in the corporate maw”.

    And how right that sounds to me. The whole idea of economic growth as an entire country impresses me as something for the 1% and definitely not the 99%. Jon Katz, however, is talking about the 99% and maintains that there is still a place for the “little guy”, which is basically what I was so poorly trying to say. MCS

    Comment by Mary — November 11, 2013 @ 3:00 pm

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