So like most of you I stayed up late last night reading President Joe Biden's speech to the House Democrats at their retreat in Baltimore. Joke. It was riveting. Another joke. Of course, he accused Republicans of raising the budget deficit by $3 trillion over the next ten years. That's one of his standard untruths. He's referring to the Trump tax cuts which of course he hates because they were so successful. They actually made money for Uncle Sam and delivered a 6.5% growth economy when Biden was elected with a 1.4% inflation rate.
Mr. Biden bragged about how important the $1.9 trillion American Rescue plan in March of 2021 was and how successful it was. Even though in his first full year in office, growth plunged to 0.9% and inflation soared to 6.5%. Biden went on to say Republicans would cut social security, Medicare, Medicaid and veterans' benefits, all the usual Democratic pap. He took credit for cutting the budget deficit, which as everyone knows is untrue because the temporary reduction is from emergency COVID spending that expired.
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Meanwhile the CBO just scored a $20 trillion increase in budget deficits over the next decade, which Mr. Biden forgot to mention. He started to talk about inflation and then wandered off into personal anecdotes – like how long he's known Steny Hoyer – but inflation is proving to be very sticky around 6%. Productivity has fallen by nearly 2% over the past year. Unit labor costs have jumped up over 6%. And business inflation is coming in at 6%. The rise in unit labor costs will do some damage to corporate profits and the stock market.
Biden started mocking specific Republicans, as usual, but the basic point is: he will do anything not to cut any spending which is expected to rise to nearly 25% of GDP – about 5 percentage points above the 50-year average. Interest rates continue to rise and have a ways to go on the upside including mortgage rates and credit card rates and help explain why Americans feel they are poorer and worse off financially than a year ago. People have jobs. But their wages are below inflation and their standards of living are falling. Biden forgot to mention these things as well.
So, after reading Biden's literary masterpiece about American economic decline, I set down on paper a few ideas how to reach the kind of 3.5% growth that we had for 50 years following WWII. These are policy proposals with ballpark estimates so bear with me it’s not exact, but it’s in the ballpark. First up, extend the Trump tax cuts, which will add at least one half percent to real GDP. By the way if you went to a modified flat tax rate of 20% for corporate and personal income, that will add at least 2% to yearly GDP according to the Tax Foundation. Then get spending back to 20% of GDP - that would add one third of 1% to growth. Reopen the oil and gas spigots, adding one third of a percent. Reinstall work fare requirements, adding one third of a percent. Index capital gains for inflation, adding at least one third of a percent. Repeal all new Biden regulations, adding 1% (according to Kevin Hassett). And implement strict M2 control guided by commodity price level targeting to keep inflation permanently below 2%. There’s no telling how much that would add to growth.
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All this would get you to 3.5% to 4% or even more. This is not hard, it’s all common sense – but somehow it wasn't in Mr. Biden's speech to those Democrats yesterday.
