Economics: The Dismal Science
Economics has been characterized as “the dismal science.” The unfortunate truth is economics affects all of us and everything we do and our well-being.
Our education system has failed us all miserably by its failure to teach us anything substantial and long-lasting concerning economics and this science’s impact on our daily lives. I am confident that over 90% of our fellow citizens could not construct a supply and demand curve, have knowledge of the marginal propensity to consume or even the difference between gross profit and net profit. In spite of this, there are some facts I think we can all understand. They are as follows:
n America’s Two Economies: From our founding until the early 1960s, America had one economy: the private economy. We now have two economies, a private economy and a public economy. The private economy is defined by all the goods and services we produce as a nation and consume. The public economy is the economy based on taxes and borrowing by the Federal and to a lesser degree State governments, to fund what has become known as entitlements. In 1960, the public economy represented 20 percent of the Federal government’s spending. In 2012, entitlements as a percentage of the total government’s outlays reached over 60 percent. These expenditures are called government transfers. Simply put, this means money taken from tax payers or borrowed and then transferred to individuals. In 1960, it amounted to less than one-half a trillion dollars; in 2012 it amounts to $2.4 trillion. The question is: “Which economy will dominate our future?” We can see what is happening in Europe, from Greece to Spain to Ireland to Portugal and beyond, when the public economy overwhelms the private economy.
n Fifty States and their Fiscal Health: A recent report by the State Budget Crisis Task Force co-chaired by Paul Volcker, the former Federal Reserve Chairman and Richard Ravitch, the architect of New York City’s recovery, concluded that raising Medicaid costs coupled with unsustainable state pension expenses are currently and projected to squeeze out spending by the states on education, infrastructure and other state-constitutionally mandated services. They concluded that unless the Federal public economy and the entitlements embodied therein are not reined in and the over-spending by the Federal government in all categories is not reduced to match real revenues without borrowing, then the states will be forced into individual financial disasters one by one. This includes our own state, South Carolina. Here again, the public economy is overwhelming the private economy.
n Taxes & Fairness: The Congressional Budget Office (CBO) most recent analysis on tax fairness came to several conclusions which have been grossly under-reported. Those conclusions are:
n The top 25 percent of wage earners (those earning $75,000 per year or more) pay 76.2 percent of all taxes to the Federal government and this data includes both payroll and income taxes. The 60 percent of wage earners starting from zero income up to $50,000 per year, pay 18 percent of all taxes. The conclusion of this study is the share of taxes paid by the top 20 percent of wage earners has gone up over the past 30 years while the share of taxes paid by everyone else has gone down.
n Tax Cuts & Federal Revenue: John Kennedy, during his presidency, cut taxes across the board. Bill Clinton cut taxes on capital gains and restructured the balance of the tax code. George Bush cut taxes across the board. The net result of the action by these three Presidents is that in each case, Federal revenues increased, Gross Domestic Product (GDP) improved dramatically and the recession that preceded these three Presidents’ election into office was defeated and economic activity expanded for the benefit of not only the Federal treasury but also households and citizens from all income categories.
America has a spending problem not a revenue problem when it comes to Government spending and tax policy.
Tonight, Wednesday, October 3rd will be a debate between the President and his challenger. The topic of the debate will be domestic policy, but really economics. It is important for all to take the time to watch this debate. It is also important to understand that electing a President is not a popularity contest, but a decision by the voters as to how that dismal topic, economics and economic policy will determine our future.
Lynn Mueller is a veteran Republican campaign consultant who has joined Swatzel Strategies. His bi-monthly column in the Georgetown Times focuses on economics and politics.
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