Transterrestrial Musings

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In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.
As some commenters on Instapundit showed (http://instapundit.com/archives/031307.php), Kudlow made a few mistakes:
- not adjusting for inflation
- having a bad figure for the size of the Chinese economy.

Still good news though.

Posted by ech at July 11, 2006 03:00 PM

Actually, it's disappointing news, given the big economic picture. The GNP deflator over the interval Kudlow quotes is 7.89%, so the real increase is only 11.93%, not the nearly 20% he asserts. Is 11.93% all that impressive? Not so much. The average GDP increase per quarter was 3.28% in the current expansion, vs 3.63% for the 1990s expansion. And during that expansion, there were balanced budgets - several of them.

Although the top fifth of American earners reaped 92% of the benefits of the tax cuts, there has been no increase in wage growth for everyone else. Individual tax receipts are still below their 2000 levels.

Don't get me wrong, I'm no income redistributionist or anything. I'd like to see an America where the amount of money you do have matters less than it does currently. But the current economy is in no meaninful way "better" than the one the current administration started with.

Posted by Jane Bernstein at July 11, 2006 05:10 PM

And, during the 90s expansion, we "spent" the peace dividend.

The problem with the "Repubs spend too much" argument is that the alternative is not perfection, it's Dems, folks who spend MORE.

Posted by Andy Freeman at July 11, 2006 05:38 PM

> Although the top fifth of American earners reaped 92% of the benefits of the tax cuts, there has been no increase in wage growth for everyone else. Individual tax receipts are still below their 2000 levels.

What fraction of the tax burden should be paid by folks in each income cohort?

Posted by Andy Freeman at July 11, 2006 05:39 PM

"But the current economy is in no meaninful way "better" than the one the current administration started with. "

Considering that the administration inherited a recession pon taking office and the economy is currently enjoying robust economic growth, you could not be more wrong if you tried Jane.

Posted by Mike Puckett at July 11, 2006 06:08 PM

"But the current economy is in no meaninful way "better" than the one the current administration started with."

And the stock market reflects that, going basically sideways over the past five years. That's also why companies aren't really investing, but are instead hoarding cash and paying down debt. Everyone's going into hunker-down mode.

Why? Because we didn't go through a proper recession after the excesses of the 90s. The economy needed a bit more pain to wring the poisons of dishonesty and self-servingness out of the system. The tax cuts forestalled that, but all that really happened for the bulk of Americans is that they were able to buy a few more six-packs and packs of cigarettes.

It's going to get ugly, and a colleague at the bank -strongly- suggested I forestall my ambitions to buy a house. A delay could be worth $10,000 in the Dallas market.

Now there may be a bit of bias in my doom and gloom, as I'm currently examining and auditing the entrails of the seedy underbelly of mortgage lending. It's really freaking ugly and parts of it enrage me. But I'm also seeing all kinds of nasty economic things that most folks aren't privy to. Quote macro statistics all you want (and macroeconomics was my specialty in my International Business & Economics degree), but what I'm seeing in the trenches doesn't jibe with the party message.

And what American industry do companies have to invest in? Steel's gone, as are textiles. Cars? Maybe. Computers? Eh, not here. Hmm, what promising young industry in which we enjoy a competitive advantage could American Finance invest in? What offers the richest rewards?

Hmmm...drawing a blank. ;-)

Posted by Ken Murphy at July 11, 2006 06:27 PM

So is this good news or not? It is, I think, the stock market is up over 11K, jobs are up, and durable goods orders are steady to going up.

What surprises me is that no one here mentioned the business lull after 9/11.

Could things be better, always, could they be worse, always. Tons of money no longer exist for wages because of the colapse of the dot com market. Many of those folks left the industry or took jobs at much lower wages. It certainly helped us lose everything we owned. But jobs have been found, food is getting bought, and the lights and TV are on. So like most Americans we weathered the last few years.

So ultimately we come once again to the same breakdown I've seen a million times since the 2000 elections. Liberals see things as bad, Conservatives see things as being good and the National League will probably lose tonight.

The more things change the more they stay the same.

Posted by Steve at July 11, 2006 07:09 PM

and the National League will probably lose tonight

Alas, your predictions all come true. One pitch from victory and blah. Feh!

Tob

Posted by toby928 at July 11, 2006 09:05 PM

I don't really see any of the counterarguments presented here as being terribly valid.

Andy, I don't have any particular preferred distribution of tax burden to each income cohort. I think tax progressivity is equitable, I think that the payroll tax, for example is terribly regressive, and I think that in an economic expansion, however tepid, the benefits thereof should not accrue solely to a single income cohort. We should all benefit from it. The unambiguous statistic is that wage growth has not even kept place with inflation for the bottom 80% of the income distribution. There's a statistic I've just discovered called the "Dini Index" - a measure of income distribution - which puts the US between China and Nigeria in terms of income inequality. There's no denying that a large portion of the improvement in the economy has gone to a very small group of people. I'm one of them, as it happens, but that doesn't mean I think it's right.

Mike, while a recession was beginning when the administration took office, we do not enjoy robust economic growth. We are enjoying tepid economic growth by historical standards, and most of us are not benefitting from it. The 1990s expansion is a major counterexample, where the growth was more robust, and the distribution was more wide.

Steve, the worst part of the current economy in my view is the colossal deficit. Four of the five highest deficits in history are on the watch of the current administration, and the interest payments on the debt thus incurred are going to eat our collective lunch in the future. I think there's validity in the argument that the peace dividend kicked off the expansion of the 90s, and I'm not going to get into the debate at the moment about the current occupation of Iraq and its associated costs, but the best investment in the 1990s was in deficit reduction, and its associated reduction of long term interest costs on the federal debt. That trend has decisively reversed. Steve, it isn't a question of whether Americans have weathered bad times, at least for me, it's whether our government has caused them, and I think there's a case to be made that it has.

Posted by Jane Bernstein at July 11, 2006 09:15 PM

The 1990s expansion is a major counterexample, where the growth was more robust, and the distribution was more wide.

Because we were in a bubble.

Four of the five highest deficits in history are on the watch of the current administration

Big whoop. Instead of talking about big deficits at a time of the largest economy in the nation's history, go look at that history and see that there have in fact been much larger ones as a percentage of GDP, which is a much more meaningful number.

In any event, this all seems to be irrelevant to the point of the post, which is that we have reduced the deficit with tax rate (not tax) cuts.

Posted by Rand Simberg at July 11, 2006 10:08 PM

Rand, I think that, regarding your comment about "being in a bubble" that you may be overestimating the effects of the IT sector and resultant market buoyancy on the economy. It certainly doesn't address the problem of income distribution at all. A bubble economy benefits speculators the most, traditionally, so arguably you undermine your own case there.

On the subject of deficits as a percentage of GDP, I concur that that is the more meaningful number. The unified budget deficit for the first nine months of the current fiscal year (measured by the relevant factor, debt issued by the Treasury department) is 487.3 billion, barely down from the record 491.1 billion in fiscal 2004. But the annual increase in the debt is running around 4.5% to 5.0% of GDP. This is a classic "structural budget deficit" - something most economists believe should be avoided.

The deficit is not significantly reduced. And tax rate cuts have accomplished little beyond tax revenue reduction. In * nominal * terms, we're down from 997 billion in individual tax receipts to 927 currently. It's not sustainable and it's not fair. I'm forced to conclude, as much as I wish it were different, that the current administration has mismanaged the economy.

Posted by Jane Bernstein at July 11, 2006 11:03 PM

Of course not, since that wasn't the topic of the post. That's your hobbyhorse, not mine. In a country in which the poorest live better than royalty a couple centuries ago, I don't necessarily see it as a problem.

Posted by Rand Simberg at July 11, 2006 11:17 PM

...tax rate cuts have accomplished little beyond tax revenue reduction.

You believe that the economic growth would have been the same, or higher, absent tax rate cuts?

What is your basis for this (to me, strange) belief?

Posted by Rand Simberg at July 11, 2006 11:19 PM

So if individual tax receipts dropped, that means wages were lower, not a reduction in rates for individuals and more money in the paycheck? Overall receipts were at a record high so business paying more in taxes means the rest of us lost money?

Posted by Bill Maron at July 12, 2006 04:39 AM

"I don't really see any of the counterarguments presented here as being terribly valid."

Funny, I was thinking that your original argument was not very compelling, just aq bunch of gratutious generalizations and talking points. Much like this one in your follow-up:

"Mike, while a recession was beginning when the administration took office, we do not enjoy robust economic growth. We are enjoying tepid economic growth by historical standards,"

4+% is robust by historic standards, no matter how much you claim otherwise. You are entitled to your opinions but there are only one set of facts.

" and most of us are not benefitting from it. The 1990s expansion is a major counterexample, where the growth was more robust, and the distribution was more wide"

Nonsense talking points and emoting.

Unemployment is remarkibly low. This is evidence that most are benefitting.

Jane, our current economic growth rate is not that much behind the Clinton 'glory' bubble years and I suspect it won't pop like that one did.

The fundamental core of our economy is fueled by the growth in productivity and productivity growth is robust. Everything indexes off of productivity.

Posted by at July 12, 2006 07:44 AM

The above was mine.

Posted by Mike Puckett at July 12, 2006 07:45 AM

Ken says: And the stock market reflects that, going basically sideways over the past five years.

Let's see....right around 7000 after the bubble burst.....over 11000 now....

Sideways how exactly?

Companies are paying down debt, yes...why? Because paying down debt does wonders for your stocks, as does having good management with a significant stake in their company. I'm all for being prepared for a stormy day, but at least enjoy the sunshine when its out.

Mac

Posted by Mac at July 12, 2006 09:33 AM

> Andy, I don't have any particular preferred distribution of tax burden to each income cohort.

My "what should the distribution be" question was prompted by a claim that a change from one distribution to a different one was a bad thing.

Now we find that the critic is unwilling to tell us what the right distribution is.

> There's a statistic I've just discovered called the "Dini Index" - a measure of income distribution

Just discovered? Wowsers. Nothing like keeping up with the field.

BTW, and it's "Gini". East Germany's index value was "better" than West Germany's, but the people wanted to go the other way.

I prefer "Freeman's measure". It's the amount of money someone will spend to immigrate to a country.

As to the "poor, downtrodden", I've never had an American take me up on my offer of a one-way plane ticket to somewhere else.

Posted by Andy Freeman at July 12, 2006 07:00 PM

ANDY!!! I've never had an American take me up on my offer of a one-way plane ticket to somewhere else.

Hey, if I can come up with the money for a return ticket.... :)

Mac

Posted by Mac at July 13, 2006 07:10 AM

Any economic expnasion has to be discounted by massive
deficit spending. If you add up the Bush era Deficits
that is over a trillion dollars. Take that off the Expansion in
GDP and the numbers look pretty sad.

When the next recession starts, the effects of structural deficits
will truly be horrible to this country.

Posted by anonymous at July 15, 2006 07:19 AM

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