Tag: Poverty

MLLG

The “Root” Cause of Poverty

George Noga

The “Root” Cause of Poverty

America has spent $25 trillion in its war against poverty

GEORGE NOGA
FEB 25, 2024

This is a companion post to my offering of last week declaring victory in America’s war against poverty. If you missed that post, it is available on Substack and on my website: www.mllg.us. The above headline notwithstanding, poverty has no root cause; it is the natural condition of mankind. We begin in paleolithic times.
The Natural Condition of Mankind

The Natural Condition of Mankind

At the dawn of civilization our ancestors subsisted as hunters-fishers-gatherers. There was no economy per se. People were divided into small families or clans, each of which functioned as a putative economic unit. They coexisted with other such units, mostly peaceably, sometimes not. Their lives, short and brutish, were on a bare subsistence level – wholly dependent on the fickle bounty of the sea, the exigencies of the hunt and the caprice of nature.

What economic lessons can we sophists of the twenty-first century glean from such primitive people? What, if anything, can they teach us? Surprisingly, they teach us an ineffaceable economic truth applicable across all time and space, i.e. the natural and normal condition of mankind is poverty. There is no known instance where any aboriginal population existed in any state other than poverty.

Most people understand the natural condition of man is poverty, but fail to grasp its implications. Progressives prattle about the root causes of poverty and even have declared war against it. America has spent $25 trillion since it declared war on poverty in 1964. In 60 years of that war, poverty has not been reduced one whit.

Those who consternate about the causes of poverty are wasting their time. They are asking the wrong question. The question we should be asking is: what causes wealth and how can we bring it about. Wealth is not a natural condition of mankind and is rare throughout the sweep of human history. Wealth creation must be understood and fostered. It is only by understanding wealth that poverty can be alleviated.

Progressives assert that, for example, lack of education creates poverty. This is a posteriori reasoning. People are born uneducated. To create wealth they need to become educated. Education creates wealth; ignorance does not create poverty.

What Causes Wealth?

Harken back to our paleolithic fishermen ancestors. They struggled to spear enough fish to survive, until a nascent capitalist thought of a net. Since capital did not yet exist anywhere to finance the construction of this fisherman’s net, he had no choice but to create his own. He worked every waking hour for months accumulating enough extra fish (his capital) to allow him the time to construct his net.

The net worked as planned and our budding capitalist now generated a surplus of fish to trade for other goods – in the process giving birth to the division of labor. His capital investment made him wealthier than the others in his clan – but it also made everyone else better off. He now generated capital which could be used by other entrepreneurs in his clan to increase the prosperity and well being of everyone.

Capitalism Creates Prosperity and Eliminates Poverty

What worked for our capitalist paleolithic fisherman is the same thing that worked for the capitalists who founded Wal-Mart, Amazon, Tesla, Apple and Microsoft. They have become immensely wealthy, but in the process they have enriched all our lives and increased our productivity. Not one of these successes was created by government or socialism. Who has done more to benefit the common man – Henry Ford, Steve Jobs and Sam Walton – or any king, president or commissar?

Capitalism has created a cornucopia of wealth unprecedented in human history. Extreme poverty worldwide is nearly eliminated and every metric of human well being is improving. Average folks live better than monarchs a few decades ago. Luxuries a short time ago are selling for ridiculously cheap prices at Wal-Mart and Costco.

To continue to improve the lives of everyone and to end poverty, we must shed our shibboleths. Unlike our stone age ancestors, we do not blame poverty on deities, animal spirits or the position of stars. Today, progressives and the media blame poverty on bogeymen like greed, multi-national corporations, western civilization, capitalism, fossil fuels, racism, free trade and lack of diversity, equity and inclusion.

In the twenty-first century we understand how to create wealth and eliminate poverty, but we fail to do so because of obeisance to the false gods of progressivism.

© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Victory in the War Against Poverty

George Noga

Victory in the War Against Poverty

There is no poverty per se in America

GEORGE NOGA
FEB 18, 2024

According to official US Census Bureau statistics compiled in 2023 (based on 2022 data), the poverty rate¹ is 12.4% resulting in 38 million Americans in poverty. This means the US has one of the highest poverty rates and child poverty rates of any developed country, with more people living in poverty than Indonesia and a higher poverty rate than Europe. This simply doesn’t pass the smell test.

man in black jacket and black pants sitting on white snow covered ground during daytime

As demonstrated herein, there is virtually no poverty in America. The true poverty rate is between 2.5% and 3.5% and consists almost entirely of people with severe cognitive challenges. The real problem is not poverty per se, but social dysfunction resulting from low IQ which then leads to poverty – more about this infra.

Following are some of the most egregious flaws in the official measure of poverty.

  • Excludes income from 88 government programs for low-income Americans
  • Fails to include refundable tax credits including the EITC
  • Debit cards loaded with food stamp benefits not counted as income
  • Based on spending² rather than income, only 2.5% are below the poverty line
  • No income from the underground (cash) economy is included
  • 42% of poor households own homes with an average of 3 bedrooms, 1.5 bathrooms, a garage and a patio or deck; 80% have air conditioning³
  • Poverty is defined in relative terms; it rises along with median income
  • 70% of the those below the poverty line report they suffer no material hardships and can meet all their essential needs for food, shelter, clothing and health care

The True Poverty Rate

As reported supra, when based on spending, the poverty rate falls to 2.5%. A BLS⁴ study based on spending (excluding only taxes) found that the poorest quintile of Americans spends only about $1,200 per year less than the second lowest quintile and only $3,000 less than the middle quintile. The richest quintile spends only double that of the poorest quintile. How’s that for equality?

Based on a 2022 population of 320 million, 2.5% is equal to 8.0 million people in poverty, while 3.5% equals 11.2 million people. The Census Bureau reports 38 million in poverty, but when we exclude the 70% who self report no hardship, we get 11.4 million or 3.6% below the poverty threshold. In yet another independent confirmation, a recent Wall Street Journal article pegged the true poverty rate at 2.5%.⁵ Based on all the prior data, the true US poverty rate is between 2.5% and 3.5%. It would approach zero percent if those with the most severe cognitive challenges were excluded.

No Poverty Per Se in America

In any normal population distribution, 2.5% have an IQ of 70 or below, i.e. they struggle to fill out a simple form. Not uncoincidentally, these are the very same people who fall below the poverty line, as low cognitive ability is associated with a myriad of social pathologies. If you looked at a Venn diagram, the two circles (those in poverty and those with low “G”, or general intelligence) would nearly completely overlap. These people deserve our compassion and assistance. We do not help them with political correctness and by ignoring the true cause of their predicament.

The conclusion is straightforward. The number of Americans in poverty is nearly precisely equal to the number with extremely low ”G”. They are one and the same. Therefore, poverty per se in America is incredibly rare and borders on non-existent. America can declare victory in its 60-year war against poverty.

The war on poverty is being waged against the wrong enemy. Public policy solutions must be redirected at the pathologies associated with low “G” and away from providing economic benefits. We need to tailor solutions focused on low ability and untreated mental illness. Poverty is a sociological, not an economic, problem.

Is America More Poverty Stricken Than Haiti?

Relative poverty is a metric used by international organizations to measure poverty; it defines poverty as less than 50% of median income. According to this convoluted statistic, a country that is uniformly and utterly destitute has less poverty than America. Where everyone is dirt poor, no one is relatively poor. According to relative poverty calculations, a much higher percentage of Americans are poor than in Haiti, Chad, Congo and Cuba. I can’t make this stuff up.

  1. The Census Bureau reports two different measures of poverty. The official measure, in existence since the 1960s, is 11.5%, and the supplemental measure first published in 2011 is 12.4%.
  2. The Census Bureau reports those in poverty spend two dollars for every dollar of reported income.
  3. This is larger than the average home of middle income families in France, Germany and the UK.
  4. Taken from a study by the BLS, or the Bureau of Labor Statistics.
  5. Wall Street Journal op-ed by John Early, former Assistant Commissioner of the BLS and Phil Gramm, former Chairman of the Senate Banking Committee.

© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

California Screaming – Prince of Fools

George Noga

The republic can survive a Biden, but not an electorate that made him president.

California Screaming – Prince of Fools

By: George Noga – June 5, 2022

California Screaming: The Cato Institute recently published the results of its multi-year project, Poverty and Inequality in California. You may be surprised that California, despite Silicon Valley and Hollywood, has the highest poverty rate in the USA. Moreover, poverty and inequality are getting worse by the day. The study found the cause is “California laws, regulations and policies are regressive, trapping people in poverty. . . . These policies involve criminal justice, education, housing and welfare.” California has had the most progressive government of any state for decades. Instead of utopia, liberal ideas have wrought the worst poverty and inequality in America.

Freedom Index: Cato also just released its Index of Personal and Economic Freedom for 2021. The five highest ranking (most freedom) states are, in order, New Hampshire, Florida, Nevada, Tennessee and South Dakota. The lowest ranking (least freedom) are New York, Hawaii, California, New Jersey and Oregon. The states with the most freedom all are red or purple; the bottom dwellers all are deep blue. Americans are voting en masse with their feet for more liberty and less government.

Prince of Fools: Following (edited for length) is from a major European newspaper. “The danger to America is not Joe Biden, but a citizenry capable of entrusting a man like him to the presidency. It will be far easier to undo the follies of a Biden presidency than to restore the necessary common sense and good judgment to those who elected him. The problem is much deeper and more serious than Mr. Biden, who is but a symptom of what ails America. The republic can survive a prince of fools like Biden, but is less likely to survive a multitude of fools, such as those who elected him.”

If Biden is the prince of fools, Kamala Harris is the queen of fools. Although the Trump presidency, or at least its policies, turned out much better than expected, he never should have been nominated or elected. He won the nomination only because 15 professional politicians all misread the electorate. He was elected only because Hillary Clinton was radioactive. Biden won, despite obvious signs of cognitive decline, because suburban women were triggered by mean tweets. In 2024 it could very well be a Trump- Clinton rematch – see my post of 5/22/22 on our website: www.mllg.us. How much longer can our beloved republic survive an electorate like this?

Permanent State of Emergency: Governments at all levels have learned their powers are vastly increased during an emergency – even if they created the emergency. It is no wonder we are in a permanent state of emergency: pandemic emergency, voting rights emergency, climate emergency and now an energy emergency. Nothing encapsulates the fecklessness of the Biden Administration more than energy. Immediately upon taking office, Biden declared war on the US energy sector in every way possible.

Biden feigns shock energy production plummeted and prices skyrocketed. He declared an ersatz state of emergency to tap the Strategic Petroleum Reserve, after first begging Venezuela (dirty oil) and Iran (fund terrorism) to produce more. Biden has reverted to the progressive playbook and is blaming greedy speculators and energy companies. Funny – these same groups were not greedy when prices were falling under Trump.

Achieving Perfect Equality: Since men first trod this earth, many have dreamt of a world with perfect equality; thanks to scientific advances, that now may be possible. The best minds on the planet could create a master algorithm incorporating all known markers of success. The algorithm would include DNA and would account for, inter alia, race, gender, sexual orientation, height, weight, IQ and life expectancy.

Key exogenous factors also would be included in the master algorithm: place of birth, social class, family income and education level, et seq. The result is a polygenic score assigned to everyone at birth. Those with positive scores would pay a polygenic tax while those with negative scores would receive a benefit – in direct proportion to how much the scores were positive or negative. If done correctly, this would make everyone equal. It is only a matter of time until progressives adopt this idea and run with it.

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Next: My lifetime of experience with government schools.

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More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

The State of the World is Better Than You Think

George Noga

Human nature causes us to measure progress against utopia rather than against the past.

The State of the World is Better Than You Think

By: George Noga – January 17, 2021

This is our first post of 2021 and we are starting out on a positive note. Most people believe the world is going to hell in a handbasket. Recent polls show only 6% of Americans think the world is getting better. Many tacitly assume that for humanity to be better off, everything must be getting better for everyone everywhere. Reality never works that way; some unfavorable trends coexist with many more positive ones. Moreover, many people tend to measure progress against utopia rather than the past.

Humans are hard wired to be pessimistic as we evolved from risk-averse ancestors. When our Paleolithic forebears heard a noise in the bushes, it could be caused by either the wind or a predator. Those who assumed it was the wind did not live to be our ancestors. We therefore are descended from people who tended to worry a lot.

We worry about, inter alia, the Covid pandemic, climate change, politics, civil unrest, the environment, crime and terrorism. Following are some key megatrends showing that Homo sapiens, far from perdition, really is getting better and better all the time. Note: much of the data used herein are from a Cato Institute book: Ten Global Trends.

Eradication of extreme poverty: In the past 200 years the world economy grew 100 fold, while population grew only 18 fold. If the same growth rate is maintained, the economy will grow 10 fold by 2100, while population will be about the same as today.

Natural resources are plentiful and becoming more so: Over the last 40 years, out of 50 commodities studied, 45 of them are less expensive (adjusted for inflation) meaning they are more plentiful relative to demand for them. The average price for all 50 commodities fell 35%, while during that same period wages grew 80%. We have never run out, or are in any danger of running out, of any nonrenewable resource!

Population soon will peak and then decline: Several demographic studies agree that human population will peak soon after mid century and then begin to decline such that in 2100 population will be close to its present level and continue to decrease thereafter. This should go a very long way toward a solution for climate change.

Abundance of food with less land: The world food supply is now 3,000 calories per day per person, an increase of 36% in 60 years despite a burgeoning population. This level exceeds the USDA’s recommended daily caloric intake. Except in war zones, famines are ancient history. More and more land (1 million square miles) has been reclaimed for nature due to use of GMOs and more efficient farming practices.

End of wars between countries: In the past 50 years, wars between nations have been rare and those that did occur resulted in much fewer casualties; this is true even though we went from 50 countries in 1946 to about 200 today. This trend is attributable to increases in democracy, greater wealth and intertwined trading patterns.

All around better world: In recent years democracies increased from 31% to 49%, while autocracies fell from 39% to 11%. In the past 100 years the chances of someone dying from a natural disaster have declined by 99%. Virtually every metric extant evidences that we live in a far safer world and it is getting better all the time.

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As this year progresses, MLLG will address many of the problems America and the world face. It is wise however to begin 2021 with some perspective, so that our problems do not cause us to lose sight of the big picture, i.e. the enormous progress humanity has made and continues to make – contrary to the beliefs of 94% of Americans. Whenever you hear a rustling in the bushes, it is not always a lion.

Our January 24th post deals with the integrity of elections in the USA.

More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

Victory in the War on Poverty!

George Noga
The War on Poverty is over. America won – poverty, hunger and homelessness lost.
Victory in the War on Poverty!
By: George Noga – September 30, 2018

          We have written for years that poverty per se barely existed in America; now,  it’s time to declare victory in the War on Poverty! The White House Council of Economic Advisers recently issued a report which included the following: “Based on historical standards of material well-being . . . our War on Poverty is largely over and a success.” Predictably, progressives and poverty pimps won’t accept victory; they continue to rant that anti-poverty programs are insufficient and must be expanded.

          Please note we use the term “per se“. There are about 8 million Americans, or 2.5%, living in material poverty. The normal distribution of human IQ dictates 2.5% will have IQ below 70, which is de facto retardation. That means there are 8 million Americans in that category – the same number as in material poverty. It should be incandescently obvious that those two cohorts are one and the same; a Venn diagram would show the two circles nearly 100% overlapping. This is the basis of our statement that there is no poverty per se, because the real problem is retardation, not poverty.

          In addition to poverty, low cognitive ability accounts for hunger, homelessness and a host of other social pathologies. Venn diagrams for these also would mostly overlap with low IQ. As with poverty, hunger per se has been eliminated. Nearly 40% of Americans are obese and food insecurity has replaced hunger in the liberal lexicon. We have reversed the centuries old paradigm; today, the wealthy are thin and the poor fat. Homelessness also is extinct, apart from low IQ and untreated mental illness.

        By far, the biggest flaw with usual measures of poverty is that they are based entirely on reported income. When we look at spending instead of income, the picture changes dramatically. The poorest quintile of Americans spend $2 for each $1 of reported income. Official measures of income fail to take into account benefits such as SNAP, EITC, public housing, Medicaid and many others. They ignore the underground (cash) economy estimated at $3 trillion and concentrated among low income groups. They also fail to account for quality changes and shifts to uber low-cost stores.

       Today, the bottom quintile of Americans live as the middle class did a generation ago – as measured by size of homes, number of rooms per person, air conditioning and  other amenities. The top income quintile spend only about twice as much per person as the bottom quintile, showing low inequality. The poorest 10% of Americans live equal to or better than most Europeans. If Sweden, touted by many as a socialist paradigm, were a US state, its per capita GDP would be similar to Mississippi, our poorest state.

         No discussion of poverty is complete without noting relative poverty, defined as less than 50% of a nation’s median income. By this stilted metric, the US has more people in poverty than many third world countries. A country uniformly and utterly destitute has less relative poverty than America because in places where everyone is dirt poor (Haiti, Congo, Guinea), no one is relatively poor. When you see news stories asserting high poverty rates in America, they invariably are based on relative poverty.

         America has extinguished poverty, hunger and homelessness per se. Nonetheless, there are 8 million still living in material poverty – many of whom also are hungry and homeless. These people deserve our compassion and assistance. We do not help them by being politically correct and ignoring the true cause of their predicament. Instead, we need to tailor solutions to deal with low ability and untreated mental illness.

         We also should recognize our victory over poverty. This truly is a great American accomplishment and worthy of being honored and celebrated throughout the land.

Next: The definitive account of socialism in the Nordic countries.

Inequality in America V – Putting it All Together

George Noga

Surprising answers to questions about inequality in America

By: George Noga – May 29, 2016

   Even socialists agree inequality from newly created wealth (even massive wealth a la Gates and Jobs) is an unalloyed benefit to society because it is the best metric for how well an economy is innovating, becoming more productive and responding to the needs of all people. Inherited wealth is mostly dissipated in a few generations, heavily taxed and often used charitably. Last, if Social Security and Medicare benefits were capitalized and included in wealth measurements, inequality would plunge markedly.   At the outset of this series, I promised to explore and to answer many questions about inequality in America based on facts and logic. Following are the answers.

    It is nigh impossible to get an accurate picture of inequality of income due to deeply flawed statistics based on AGI and household income, inconsistencies between income cohorts and flawed comparisons that don’t track the same people over time. One conclusion is certain. Accurate data would show much less inequality of income. Progressives oppose disparity in pay between CEOs and workers but are okay with similar clefts for athletes and movie stars. Steve Jobs took a nearly bankrupt Apple and created $750 billion of value; he made $2 billion, or 0.27%; was he overpaid?

    Data based on spending shows sharply less inequality; the lowest income cohort spends $2 for each $1 of income. There is no inequality based on taxation (including payroll taxes) as America has one of the most progressive tax systems in the world. Nor would a $15 minimum wage reduce inequality; less than 1% earn the minimum and their average household income is $50,000. Young, poor, minorities and the unskilled are harmed by minimum wage laws. The truly poor need jobs not a higher minimum wage. Progressives claim a moral imperative to increase the minimum wage knowing aforehand it creates unemployment. Where is the morality in that?

    The chasm between reality and rhetoric is wide. All measures of inequality, Gini, Theil and MLD, are markedly worse under Clinton compared to Reagan and under Obama versus Bush 43. Inequality is fueled by progressive policies including: (1) tepid economic growth; (2) higher taxation; (3) opposition to school choice; (4) energy policies; (5) ObamaCare; (6) opposition to trade; and (7) spending, debt and deficits. It is progressive dogma that creates inequality despite its self righteous rhetoric.

    All metrics show less inequality in Europe; however, we must ask if that is a good thing or a bad thing. Many Europeans lead lives of quiet desperation with no economic mobility and a permanently moribund economy; they even refuse to reproduce or to defend themselves. Europe produces no innovations in electronics, software, drugs or even pop culture. The former USSR would have scored favorably on measures of inequality as does Botswana; where everyone is poor, there is no inequality. The Gini coefficient for happiness in America is the highest in the world; that says it all!

    There are some things we should do to reduce inequality. Foremost is to stop corporate welfare as wealth created by government is illegitimate. Too big to fail needs to be eliminated as this is but another form of government largess. Capitalism must be based on both the carrot and the stick. Most Americans understand and accept inequality created by the marketplace; their beef is with government playing favorites.

    At its beating heart, inequality is mostly an imaginary problem. The vapid dogma of progressivism is incapable of solving real problems; therefore, it creates a series of phony problems for political maskirovka. As demonstrated in this series, progressives have created the very inequality they now hypocritically rail against. In sum, inequality in America is not a serious problem except when created by government.

The next post June 5th entitled “Hurricane Warning” is particularly pithy.

Inequality in America IV – Reality versus Rhetoric

George Noga

There is an abyss between what progressives say and do. They vehemently condemn inequality while advocating policies that create and exacerbate it.

By: George Noga – May 22, 2016

    There is a staccato drumbeat from progressives asserting there is a grave and metastasizing crisis of inequality in America. In this fourth part of our series, we reveal the specific policies of Obama and progressivism that result in greater inequality.

1. Tepid economic growth is the 900-pound gorilla. Under Obama, coming off a bad recession, there has never been a year with 3% growth. It is the worst economy ever under these circumstances. The lack of growth is due to Obama’s policies for taxes, regulation and health care amidst great uncertainty. A languishing economy coupled with tiny wage gains is radioactive for poor and minorities and exacerbates inequality.

2.  Black youth unemployment is over 50%. Obama refuses to consider a temporary entry level wage. Instead, he wants to increase the federal minimum wage by 40%.

3.  Higher taxes are like steroids for inequality. Obama’s tax increases on dividends, capital gains and small business constrain capital investment and are a death-knell for job creation. His refusal to lower the corporate tax rate keeps trillions locked up abroad instead of financing jobs at home. Tobacco taxes have skyrocketed, disproportionately harming the poor; one pack a day costs $1,000 a year more in taxes – more inequality.

4.  Opposition to free trade is harmful. Obama deserves credit for the TPP; however, progressives led by Clinton and Sanders are demagoguing it to death and want to kill it. The underclass benefits more than any other group from free trade. For liberals however, obeisance to labor unions trumps the welfare of the underclass.

5.  Opposition to school choice keeps poor kids in failing schools. School choice is not only the civil rights issue of our time, it is a potent economic issue. Liberals choose to pander to teachers unions while throwing poor kids under the school bus. Lack of school choice could very well be the number one contributor to increased inequality.

6. Higher prices for food and energy wreak havoc on the poor. Food prices have surged due to Obama and progressive support for ethanol subsidies. Energy takes 25% of the income of poor families but only 10% for a high income household. The average price of a kilowatt hour was up nearly 40% under Obama – until the recent drop in oil and gas prices – which occurred despite, not because of, Obama’s policies.

7.  ObamaCare is a disaster and poor Americans bear its brunt. Health care costs are rising along with taxes to fund it while access and quality of care plummets. Doctor shortages, rationing and death panels will have more impact on the poor. Meanwhile, the legions of 29ers and 49ers are growing due to perverse incentives in the ACA.

8.  Obama’s spending, debt and deficits savage savings. Poor elderly Americans have seen incredibly low interest rates damage their lives. For every $25,000 a retired couple has in savings, monetary policy under Obama costs them $100 per month.

9.  Increasing the minimum wage fuels inequality. Progressives claim a moral imperative to raise the minimum wage knowing it costs poor and minority jobs. The real minimum wage always is zero, and that is exactly what the wage will be for many.

10.  Obama has created a poverty trap. If a low-middle income family with children has a second worker enter the labor force, the effective tax rate on the extra earnings is up to 80% due to phaseout of benefits. Under Obama, the number of single earner households has increased 2.6 million and households with no earners by 5 million.

    Every one of the above factors increases inequality and every one is a creature of progressive dogma. The difference between progressives’ rhetoric and reality is indeed a bottomless abyss. Progressives created the inequality in America they now demonize.

Part V, the final post in this series, is scheduled for May 29th.

MLLG

The Panacea of Economic Growth

George Noga
By: George Noga – November 1, 2014
       Throughout its 238 years, the US economy has grown by over 3.0% annually, although data for the early years are problematic. For the 60 years from 1940 to 2000, the US economy grew at a rate of 3.6%. For the following 14 years from 2001 to the present, GDP grew by 1.8%, exactly half that rate. If growth remains tepid, Americans will not recover the ground they lost and their children and grandchildren will, for the first time, be worse off than the previous generation.
        America has transmogrified into Europe which is in permanent recession due to its failed economic policies. Even stalwart Germany is beginning to stagnate. France is destroying its economy in a fit of socialistic angst. Italy has a lower GDP per capita than it had 15 years ago. Meanwhile in Brussels, Jean-Claude Junker continues to strangle EU countries with bureaucrats and regulations. In Europe a 2% growth rate is seen as optimistic, 1.5% as acceptable and no growth as possible. The average European in one generation fell 25% behind the average American due solely to differences in GDP growth. As I wrote last month, just in the past 5 years, the average American has been impoverished by 17% due to the low growth rates coming out of the recession compared to the historic growth rates in similar times. In short, we already have become like Europe although Europe continues to plumb ever new depths. We are well along in suffering a lost decade on the path to a lost generation; our progeny, like Europeans today, will lead lives of quiet desperation.
“Failure to grow America’s economy is a choice; decline is not inevitable.”
        Failure to grow our economy is a choice; decline is not inevitable. It is a choice made by our political leaders solely because they prefer to demagogue inequality, class warfare and corporate profit for perceived electoral gain. It is a choice made by the media because they are lazy, economically illiterate and prefer to flog dead camels. It also has been a choice made by ordinary Americans in the voting booth for all of the aforementioned reasons advanced by politicians and the media. There are strong signals however that ordinary Americans now are beginning to want economic growth.
Economic Growth as the Panacea

        As trumpeted by the headline of this blog post, economic growth is a panacea; indeed, it is the only solution for every problem (real and perceived) that we face today and for the coming generation. It is apropos that Panacea is the Greek Goddess of healing because strong economic growth will heal everything; to wit:

  • The crisis of spending, debt and deficits: A sustained period of strong economic growth (combined with some spending restraint) will enable the US to restore fiscal balance and to stabilize its debt thereby gradually lowering the Debt/GDP ratio to its long-term historical level of around 30%.
  • Climate change and environment: If in the distant future climate change causes some issues, the best antidote is a vibrant economy that will easily enable us to spend whatever is needed to mitigate any such problems.  Only countries with strong economies can afford to spend copiously on the environment.
  • National security: The single greatest asset (weapon) we possess for our national security is a growing, resilient economy. This enables us to spend whatever is necessary to deter any possible adversaries and to defend ourselves should that be necessary. Weakness invites aggression and fosters terrorism.
  • Jobs, poverty and inequality: It is economic growth, not government, that creates jobs. It is sustained growth that fulfills the American dream and eliminates poverty; moreover, growth is the great equalizer.
  • Unfunded mandates: The USA is facing $350 trillion (over one-third of a quadrillion) in unfunded commitments in the next 50 years for Social Security, Medicare, government pensions, Obamacare and other programs.   Absent  a high rate of growth, these promises not only cannot be kept but will require drastic reductions in programs.
Recipe for Economic Growth

      Okay, so economic growth is the panacea; what must we do to achieve it? The answer is straightforward and attainable. If we do the following  we will achieve vigorous, long-lasting economic growth.

  1. Political consensus: Probably the single most difficult hurdle for achieving growth is reaching a political consensus. Politicians and the media must agree to pursue policies that maximize growth and agree to stick with such policies for the long term. They can continue to argue over how to divide the wealth that results; that is what politics is about. Absent some consensus however, achieving sustained growth becomes problematic.
  2. Tax and fiscal policy: Taxes (personal and corporate) must be reduced, simplified and stable. People and businesses must be able to plan ahead and certainty about taxation is indispensable to investment and job creation. In the same vein, spending needs to be restrained.
  3. Eliminate uncertainty: Business hates uncertainty; it stifles planning and results in gridlock. There needs to be a broad and sustained political understanding about taxes, regulations and new initiatives.
  4. Sound money: The Fed should focus only on maintaining sound money and fighting inflation. A strong, stable and sound dollar are indispensable for a vibrant economy.
  5. Regulation: The economy is being strangled by regulation and litigation. We need to have a moratorium on new regulations while we gradually reform and roll back existing ones. Our tort system needs to be reformed.
  6. Energy: We should develop every possible energy source including ANWR, offshore and shale and natural gas on federal and state lands. We should export LNG immediately from many terminals and, of course, construct the Keystone XL Pipeline. Such a policy will create jobs, make us energy independent, stimulate the economy and, importantly, prove to be a potent weapon in keeping Putin and Russia in check.
  7. School choice: I include this because educated, trained workers are a potent economic resource. Further, school choice will bring about more equality and reduce poverty. It also is a panacea.
     The choice is ours. We can continue on our present slow growth trajectory which will condemn future generations to a downward spiraling economy and reduced living standards; they will experience untold miseries as the crisis of spending, debt and deficits culminates in a meltdown. They will inhabit a Clockwork Orange nation drowning in taxes, regulation and uncertainty. They will have part time jobs for low wages. At best they will collect 65% of the present Social Security benefits deferred until they are age 70; Medicare and Obamacare (also age 70) will be busted; health care rationed and long waits common for poor treatment. They will inherit a volatile, dangerous world where nuclear weapons proliferate, a revanchist, aggressive Putin-led Russia and all without the resources for adequate national defense.
       Or, we can make a different choice; we can choose to reject decline and to embrace high-growth policies. This would lead to a virtuous circle of better education, abundant and cheap energy, and to a far safer and more secure nation and world. It would result in fixing the debt crisis and funding all the promises we have made for the future. Most of all, it would help ordinary Americans. As year after year of high growth enriches America, the politicians can fight over how to best divide up this cornucopia – including addressing any inequality issues.
       Firstoff however, we must make the right choice. This gets us right back to the heart of Alexander Hamilton’s question: “Whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend on accident and force.” Is America today still capable of putting politics aside when self preservation is at stake? Or, do we heed the Siren song of politicians advocating failed ideologies, searching for Utopias and demagoguing political correctness, class warfare and inequality?