WASHINGTON, Feb. 1, 2016 — Last week the U.S. Bureau of Economic Analysis reported that the nation’s gross domestic product (GDP) grew at an annual rate of .7 percent. In the third quarter, the GDP grew at a 2 percent annual rate and for the entire year 2015, GDP grew at a 2.4 percent annual rate.
In a healthy economy, the GDP should grow by at least 3 percent and after a recession, a healthy economy should grow at least 4 percent per year. Throughout seven years of the Obama economy, America has never experienced a period of solid economic growth. Now, it appears the economy is slowing.
In 1982, after an even more severe recession, the federal government made economic growth its No. 1 priority. The primary action undertaken by President Reagan and the Congress was to lower tax rates for all Americans. That meant consumers soon had more disposable income to spend on products that they demanded.
Obama and the Democratic Congress, on the other hand, tried to stimulate the economy by having the federal government spend massive amounts on projects they wanted rather than products American consumers wanted.
A prime result of this policy was the manufacture of more solar panels and more environmentally friendly products that consumers simply did not purchase. As a result, this much-vaunted stimulus package did not stimulate growth, but instead resulted in huge government budget deficits and little growth, not to mention bankruptcies for several ill-advised taxpayer-subsidized companies and programs
In the 1980s, the federal government reduced tax rates for all Americans, including the wealthy. The result was that corporations and the wealthy were able to increase the amount of new capital entering the economy. This led to a large increase in investment spending, enabling new factories to be built and new companies to obtain capital needed for expansion. The resulting increase in capital, accompanied by a growth-oriented government monetary policy, served to keep interest rates low while jump-starting economic growth.
For the four years following the end of the 1981 recession, U.S. economic growth averaged more than 4.5 percent annually. This higher growth led to economic opportunities for all Americans regardless of class.
The federal government also reduced welfare payments so that welfare recipients actually had to look for jobs. But since there was ample opportunity in a growing economy, most of them found jobs. This, in turn, launched a steady and durable downward trend in the U.S. unemployment rate, which declined from the 10 percent in 1981 to 4 percent by the late 1990s. This impressive decline in unemployment also significantly reduced the number of people collecting welfare.
During both of his terms in office, however, President Obama did exactly the opposite. While he agreed with Congress to extend the Bush tax cuts permanently to all Americans, he insisted that the wealthy pay more. He raised their tax rates by 10 percent in a futile effort to “reduce income inequality.”
Worse, Obama reversed the welfare reform passed by Congress in the 1980s as well as the additional reforms passed in the mid-1990s during Bill Clinton’s presidency. Obama also ramped up the food stamp plan to record levels, giving more food stamps to Americans, while also increasing the time they could collect unemployment compensation. As his crowning achievement, he then “gave” all Americans who couldn’t afford it free or nearly free health care.
Obama’s motivation was to redistribute income in order to reduce income inequality. He reasoned that if he over-taxed the wealthy, he would reduce their disposable income. He reasoned that if he gave more assistance to low-income earners in the form of more welfare, more food stamps and free health care, their disposable income would increase.
However, instead of reducing income equality, exactly the opposite has occurred. Income inequality has worsened significantly during the Obama administration.
The real solution to reducing income inequality is to stimulate economic growth so that GDP can grow at 4 percent or more per year, at least for a few years. To do that, the federal government must reverse its current course and do exactly the opposite of what President Obama has done.
Tax rates should be lowered for all Americans, including the wealthy who provide capital for expansion. Regulations must also be reduced so that Americans are protected from disaster while benefiting from an environment that encourages economic growth. This is simply not the time to be raising the minimum wage, nor is it the time to require businesses to provide health insurance for all employees whether they can afford to do so or not. Those business burdens, while seemingly the compassionate thing to do, are really hurting precisely those people they were intended to help.
Poor growth will continue as long as the administration’s current economic policies are followed. It is simply impossible to experience a sustained period of economic growth when government policies encourage people to stay out of the labor market and instead collect government handouts. It is impossible for the economy to grow when the government discourages the creation of new capital by over-taxing businesses and the wealthy.
We need policies that stimulate growth instead of policies whose primary priority is the cure a perceived social injustice. If things remain as they are, a recession in 2016 is now a distinct possibility.
*Cartoon by Branco: Reprinted by arrangement and with permission via this link to LegalInsurrection.