Good News: Fed Predicts Slow Economic Growth

We can now be assured of improved economic growth in the years to come.

Why?  Because the Federal Reserve Board is predicting slow growth.  And the Fed is always wrong.

That may seem harsh, but throughout the Obama administration, the Fed predicted stronger economic growth than the U.S. ultimately experienced.united-states-gdp-growth-forecast@2x

Consider the Fed’s record for the past five years. The Fed projected growth of 3.0% to 3.6% for 2011; actual growth turned out to be half that–just 1.6%. For 2012, the Fed projected growth of 2.5% to 2.9%; the actual rate was 2.3%. For 2013, the Fed projected 2.3% to 3% growth, but actual growth was 2.2%. For 2014, the Fed projected 2.8% to 3.2% growth, and the actual rate was 2.4%. Finally, for 2015, the Fed projected 2.6% to 3.0% growth and the actual rate was 2.4% again.

Are you seeing a pattern here? Five years of predictions, five years of overly optimistic projections. The Fed has been almost as incompetent about predicting growth as it’s been at producing growth.

Fed Goes Conservative

Now we have a new Republican administration, but it’s the Fed that’s gone conservative. The allegedly nonpartisan Fed is predicting that the economy will grow by just 1.9% in 2016, 2.1% in 2017, 2.0% in 2018 and 1.9% in 2019. Longer term, the growth rate is projected to be just 1.8%.

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You’re Breaking the Law

How many laws have you broken today?

It’s impossible to know for sure, given that regulations now affect just about every facet of our lives. That’s doubly true for businesses, which were not exactly coddled by the Obama Administration (although exceptions were made for generous Democratic donors, such as Goldman Sachs and Tom Steyer).Productivity

The federal tax code alone is now 74,608 pages long, or 187 times longer than it was a century ago. Depending on what you include and how you count the pages, the Affordable Care Act (ACA) has produced anywhere from 10,000 to 20,000 pages of new regulations, while the Dodd-Frank Wall Street Reform and Consumer Protection Act, developed to increase oversight of the financial industry and reduce risk, has produced more than 22,000 pages of regulations.

The regulatory state was taken to a new level by President Obama, who didn’t even bother getting support from Congress during his second term. He and the bureaucratic brethren (and sistren) he appointed to regulate worked overtime and broke all records for creating new laws to restrict our freedom, stifle economic growth, concentrate power in Washington and prevent the new Republican administration from doing its job.

That making America great again isn’t the goal of the Obama Administration is made clear by the volume of new regulations being approved. In August, we reported that he set a record by becoming the first president to approve 600 major rules (e.g., rules that each impose a cost of more $100 million). While George W. Bush was no slouch, having approved 496 major rules during his two terms as president, Obama blew past him and just kept going.

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Our Christmas List

Christmas is coming and we’re just happy that, in today’s post-politically correct world, we feel safe using that word again.

“Happy Holidays” was such a blah, generic pronouncement, it was impossible to say it and sound sincere. So “Merry Christmas” to all, even if you’re offended by the mere mention of the most joyful holiday ever created.trump-santa-2

In the spirit of Christmas, I’ve made a list.  It’s a wish list, and I understand that it may takes years to deliver everything on it, but I’m patient. And I’ve waited a long time, so a little more waiting won’t hurt.

1. A Growing Economy. Throughout the Obama administration, we heard predictions of strong growth, but it never happened. It should be clear to anyone now, except maybe Paul Krugman, that Keynesian economics doesn’t work.

Hopefully, the Trump administration will not rely on stimulus spending and loose monetary policy as President Obama has, but we’re somewhat concerned that he’s bringing in talent from Goldman Sachs, which tends toward Keynesian thinking.

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More Government, Less Manufacturing

As the first country to mass produce everything from automobiles to computers, America has a well-deserved reputation for innovation, thanks to its manufacturing sector. U.S. government employees, conversely, are most adept at producing paperwork, as we’ve previously noted.

So which sector do you think employs more people in the U.S.—those who produce or those who bog down production with new regulations?

The answer—and it’s not even close—is that government employees outnumber employees working in manufacturing. In fact, as of a year ago, there were 21,995,000 government employees and 12,329,000 manufacturing employees.  That’s 1.8 government employees for each manufacturing employee, or one employee to produce and nearly two employees to regulate.manufacturing_and_government_employees-1939-2015

Granted, not all government employees are regulators and many serve valuable roles … but is it healthy for the economy to have nearly twice as many employees working in government as we have working in manufacturing?

It didn’t used to be this way. Until August 1989, manufacturing employees outnumbered government employees. But that month, government employed 17,989,000 and manufacturing employed 17,964,000. The two sectors have been going in opposite directions ever since.

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Do You Like Being Told What to Do?

Listen, this whole system of yours could be on fire and I couldn’t even turn on the kitchen tap without filling out a twenty-seven B stroke six … bloody paperwork.                                                                                                                                                            Harry Tuttle in “Brazil” 

Americans didn’t used to like being told what to do.  We fought the Revolutionary War so that we wouldn’t have to take orders from England.  We fought the Civil War to end slavery and make every American free.  We fought two world wars to hold on to that freedom.

And then along came big government.  Medicare to help the old.  Medicaid to help the poor.  Food stamps and medical leave, help for the disabled and guaranteed wages, regulations to reduce pollution and prevent financial wrongdoing.  And much, much more.88468_Words-and-Actions-by-Eric-Allie-Caglecartoons-515x356

Some of it was good.  Some of it was needed.  But much of it wasn’t.  Do we really need more than 80 federal welfare programs to provide money, food, housing, medical care and social services to low-income Americans?  Wouldn’t maybe three or four be more efficient?

It’s difficult to pinpoint exactly when regulations got the better of us.  You could argue that it goes back to 1930, when the protectionist Smoot-Hawley Tariff Act helped cause the Great Depression and the New Deal made the impact worst.  You could argue that it was during the ’60s, when the Great Society programs and the War on Poverty took place.  As we (and many others) pointed out last year, during the 50th anniversary of the War on Poverty, after spending $20.7 trillion (based on 2011 dollars), the poverty level today is essentially unchanged at about 15% of the American population.

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Happy Dependence Day

On the fourth of July, we celebrate our freedom from tyranny. Yet King George would be envious of the control the U.S. government, and state and local governments hold over American citizens today.

Our freedom is eroding and, unless major changes are made, someday it will be gone.  If America is the “land of the free,” why are college campuses and media increasingly accepting only “progressive” viewpoints?  Diversity is a great thing, but it should go beyond race and gender to include differing points of view.SR-fed-spending-numbers-2012-p8-1-chart-8_HIGHRES

President Obama has said that he is not a king, but he has acted like one, signing a seemingly endless stream of executive orders. New laws are no longer passed by Congress, but are created by executive order (environmental regulations, dropping restrictions on Cuba) or by one-party vote (the Affordable Care Act, Dodd-Frank Wall Street Reform and Consumer Protection Act).

And, increasingly, Americans are trading their independence for government dependence.

Consider some of the ways in which we are losing our freedom.

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More Destruction, Less Creativity

Business is thriving … for bankruptcy lawyers.

Last week we noted the dismal employment report. The commercial bankruptcy statistics are yet another sign that all is not well with the U.S. economy, in spite of the continuous cheerleading from the media and President Obama’s economic propaganda tour.

Commercial bankruptcy filings have increased each month year-over-year for the past seven months. Total U.S. commercial bankruptcy filings in May increased 32% from the previous year to 3,358, according to the American Bankruptcy Institute and Epiq Systems. US-commercial-bankruptcies-2012-2016_05

Standard & Poor’s reported 12 defaults in May from among the companies it rates, pushing its speculative-grade corporate default rate up to 4.1%, the highest since December 2010 when the U.S. economy was recovering from the financial crisis—and up from 2.8% just five months ago.

Zerohedge noted that, “Even during the early phase of the Financial Crisis, in September 2008, when Lehman Brothers filed for bankruptcy, and when all heck was breaking lose, the default rate was ‘only’ 2.96%, before skyrocketing and eventually peaking at 12% in November 2009.” 

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Inflation: The Fed’s Red Herring

If you wanted to boost economic growth, which of the following would you focus on?

If you picked low inflation, congratulations. There is a place for you on the Federal Reserve Board.

The Fed’s focus on inflation is a result of its mandate to reduce or stabilize the unemployment rate and the rate of inflation. But its seeming obsession with a 2% rate of inflation is nonsensical. As we’ve pointed out, 2% appears to be an arbitrary number. Will the economy function better if the inflation rate is 2% instead of 2.5%? Why not 1.5%?

Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, wrote in The Wall Street Journal this week that it’s nearly impossible to measure the true rate of inflation, given that the rapid pace of technological change makes today’s products much different than the products of even a year or two ago. How do you compare today’s smartphone with your previous cellphone? And if you can’t compare the two products, how can you determine how much prices have changed?

“The problem that consumers care about and that should be the subject of Fed policy is avoiding a return to the rapidly rising inflation that took measured inflation from less than 2% in 1965 to 5% in 1970 and to more than 12% in 1980,

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Baby Boomer Bust

Each day, another 8,000 baby boomers turn 65.

The U.S. Census Bureau says there are more than 77 million baby boomers, defined as those born between 1946 and 1964.  By 2030 all boomers will be over 65 and will represent about 20% of the population.

So, given the growing number of boomers who have reached retirement age, why is the unemployment rate still so high?Over 65 retirement

Based on the official U-3 statistics, unemployment is still at 6.2%.  That’s much better than the 10% rate we had in 2009, but it’s considerably higher than the 3.9% rate the U.S. enjoyed in 2000 – which was long before baby boomers even thought about retirement.

If Americans are retiring at 65, that should open up more than a quarter million new jobs per month – on top of job growth caused by economic recovery.  So when the Bureau of Labor Statistics reports that 205,000 jobs were created in July 2014, it’s not exactly a sign of prosperity.

The U-6 unemployment rate, which includes those who have given up looking for work, is still 12.2%, which is practically European.

So why is the unemployment rate still stubbornly high?

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The Economic Recovery That No One Noticed

The average recovery since the end of World War II has been 58 months.  The current “recovery” has just reached that milestone.

So maybe we should be celebrating.  But what’s to celebrate?econ_expansion25_405

If you were to define “recovery” as a period when gross domestic project (GDP) increases from one quarter to the next, yes, we’ve been in a recovery.  But a recovery is typically reflected by a period that also includes, among other things, low unemployment, strong consumer spending, increasing income, higher inflation and strong manufacturing.

Most of those signs of recovery have been either barely visible or missing, and GDP has been growing about as fast as a bonsai tree.

This has been, and will likely continue to be, the recovery that no one noticed.  It’s a recovery in name only, as for most Americans it doesn’t feel much different than a recession.  Consider what’s been happening:

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