Dispatches from the Creation Wars

Correction: I believed I had downloaded real GDP data in 2005 dollars to graph. It appears that is not what I orginally downloaded but instead GDP that was not chained. I’ve updated the graph. Since I was commenting on the old graph below, I’ll strike-out that which is not true and emphasis in bold what was added in this correction. My sincere apologies.

It’s my perception that our debate on federal fiscal policy here in the U.S. is less than optimal. There are several obvious reasons for this, the most evident being the fact that conservatives en masse and many liberals have political agendas which are at odds with sound fiscal policy where those political agendas often take precedence over sound policy.

I plan to do a series this week not to promote a particular set of policies but instead provide a framework to gauge debates. While I don’t intend to promote specific fiscal policies, it is important to provide a framework regarding what is a fairly universal agreement on sound fiscal policy which I’ll present after the break. Hopefully our cognizance of this framework will allow us to better identify those whose objectives do not square with sound policy and better gauge those whose are. So here’s my first premise; in order to make or properly gauge any policy arguments, we first need to be cognizant of both short- and long-term trends regarding economic growth.

So how are we doing growth wise? Here’s our GDP growth rates over the past 60 years. As we go through this series I’ll continue to add components to this graph controlled by federal fiscal policy such as taxes, spending, and the deficit.Thumbnail image for Real GDP Growth Rate 1951 - 2010 in 2005 $.jpg

While President Obama demonstrated an elementary understanding of economics while he was campaigning in ’07-’08, we also know he’s very intelligent and was wise enough to put a process in place to get the best quickie education he could on both economics and the best economic policy debates that were ongoing. By the time of his inauguration he had become correctly cognizant of how healthcare costs are one of our biggest budgetary challenges that must be solved if we’re to become more solvent. Over the past several months the President’s come to realize the only credible policy options require economic growth and we’ve seen his rhetoric shift because of this. Our graphs throughout the week will validate the wisdom of his shifting his rhetoric to one focused on growth.

I’m not sure any world-class business operators exist which promote anything but growth if that option is feasible; the same rationale applies to government. We have and will make mistakes and suffer business down cycles which will result in budget deficits; growth is the easiest and least onerous approach to mitigating the creation of debt from mistakes and recessions. A primary reason growth is imperative is simply because we have a larger population than we had in 1950 so we require growth merely to maintain our current living standards. Growth is also what finances investment in order that we can create more optimal sustainability in a world with shrinking resources that also is impacted by our consumption and improve our collective well-being.

So here’s my premise for sound fiscal policy that frames my observations:

  • 1) We should advocate for policies that optimize long-term economic growth rates.
  • 2) Because of technological innovations we can no longer depend on adequate growth alone to provide full employment, therefore policies should also consider how to achieve growth with full employment.
  • 3) Growth policies should also optimize median discretionary [after-tax] income. We know that enormous disparities in income does not correlate to a healthy society, especially if one wants to optimize our meritocracy and optimize opportunities for upward mobility – where the U.S. used to lead and we’ve now become mediocre relative to other developed economies.
  • 4) There is enough wealth in the world and in this country to afford a social safety net that insures people have adequate food, shelter, and the only arguably debate point – access to healthcare.
  • Some of you might find this list is too short, e.g., guaranteed optimal public education; however I would argue that in order to achieve any combination of the above factors, we would require a policy that guarantees its entire populace has access to education, even number 4. # 4 as well because we couldn’t afford such social nets without a supportive workforce who can afford to fund such for those less fortunate. Also note that these premises are consistent with right-wing and left-wing policies in the past with the arguable goal of access to healthcare (which I think is somewhat irrelevant to the points made in this series). Yes there are outlier examples of conservative rhetoric attacking this paradigm on matters other than healthcare, but even in the 2000s we didn’t see any success in purposefully dismantling this paradigm nor any serious attempts either.

    Observation
    I perceived a 2-order polynomial trend line provided the best fit for our findings. I’m not a statistical expert and welcome critiques. Adding orders doesn’t change the fact our current downward trend of a growing economy at decreasing rates began in 1985. I added a 10-year moving average to better perceive the trend.
    Median and Average for entire period = 3%
    Recent six year expansions:
    ’83 through ’89 average 4%
    ’94 through ’00 average 4%
    ’02 through ’06 average 3%

    It’s interesting that conservatives look back to the Reagan era for their favored economic policies when in fact that era initiated our twenty-five year downward trend. I don’t happen to believe President Reagan’s and the attendant Democratic Congress’ policies caused this trend however I would argue their policies and both parties failed by preparing us to compete with an increasing set of more capable economies relative to their capabilities in the 1950s – 1970s. Particularly when it comes to procrastinating on meaningful reform of our energy policy and addressing both healthcare costs and that burden falling mostly on businesses now competing with countries whose taxpayers fund healthcare rather than through wages (or in developing economies’ case, little access to healthcare). It should be noted that in spite of GDP rates declining in the Reagan era, GDP per capita continued to increase through 2007 when the past recession began a decline unique to the period we’re studying (this data runs through 2009).

    It’s also notable that in spite of the 1990s being the biggest expansion of nominal growth in human history, our growth rates were small relative to the late-1960s and mid-1970s.

    Tomorrow we’ll look our trends on taxes relative to the GDP and whether conservatives are correct regarding when they argue our current tax rates are punitively high and limiting growth. Subsequent posts will be much shorter since this one sets the framework for what follows.

    Source of data
    I’m downloading data from: Christopher Chantrill’s “U.S. Government Revenue” site. That site is getting its data from: “GPO Access” which is the Government Printing Office and the U.S. Census Bureau.