Rapid Economic Growth Cures A Lot Of Sins

(first published in North State Journal 6/20/18)

‘We now estimate real GDP is expanding at a 4.0% annual rate in Q2, up from our prior estimate of 2.75% and almost twice the 2.2% growth rate experienced in Q1," JP Morgan chief U.S. economist Michael Ferol’—6/14/18

Are real GDP growth rates of 4%+ even remotely possible?

Of course they are. We experienced an extended period of real GDP growth over 4% annually from 1994-2000. Bill Clinton was President; Congress and the Senate were controlled by Republicans.

Before that, under President Ronald Reagan’s economic policies, we saw extended real annual economic growth rates over 4% from 1983-1988.

Economic booms are fueled primarily by productivity gains and pro-growth fiscal and monetary policies, not population growth as many assume. Most importantly, economic booms are fueled by abundant amounts of pure business optimism by owners and workers alike.

Business owners essentially ‘went on strike’ during the Obama years as they saw avalanches of federal regulation, taxes and control descend upon the American economic landscape. They reined in their hiring of new employees and capital investment for 8 long years and have only recently been ignited to invest and expand by the Trump and Republican tax and economic policies.

Besides the fact that there are more job openings today in America than there are people to fill them for the first time in recent history, what else does 4% annual real GDP portend for our future?

For one thing, if sustainable, 4% annual growth for the next 5 years will solve our exploding budget deficit and debt dilemma. Even though our elected leaders of all parties in Washington have been reckless and irresponsible since 2001 when it comes to federal spending.

CBO publishes regular updates of economic and budget projections, most recently April of 2018 (pictured above).

CBO makes pro-forma projections on a regular basis. Their predictions about what may happen is based solely on the most recent experience they can look backwards at and measure.

Annual economic growth under President Obama was 1.9% for 8 long years. Based solely on that precedent, CBO has made predictions about the next 10 years based on that same dismal rate of real growth.

Even though we now have a different President with a 180-degree different approach to business, capitalism, freedom and free enterprise.

In the attached spreadsheet, projections have been made based on 4% real GDP growth rates for the next 10 years, highlighted in yellow. 2% inflation is added on for nominal GDP growth of 6%.

Roughly 20% of GDP is captured by federal income, payroll, estate, and excise taxes each year so those numbers are extrapolated from the higher GDP projections to get the new revenue numbers, also highlighted in yellow.

If, and this is a humongous ‘IF’, we don’t spend any more money than projected under CBO current baseline assumptions, we will balance the budget by 2024 or certainly 2025 with real economic growth rates of 4% of more until then. (as indicated by green highlights above).

Virtually all economic forecasts were wrong in 1981 when President Reagan was in office or in 1993 before the Clinton Internet boom years. No one clearly predicted real GDP growth rates exploding under each Administration except the economic policy advisors in each Administration who privately hoped and prayed that things would turn out better than anyone had hoped or prayed.

The absolute key factor in all of this? Congress and President Trump can not increase spending over the current baselines for the next decade. Holding overall spending to 2% annual growth as was done from 1994-2001 would insure fiscal sanity.

If we experience 4% real GDP growth for any extended period of time, that sure will be a lot of ‘crumbs’ as Nancy Pelosi has called it.

It will be darn near a wedding cake for every American household.

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What Do China, The EU and G7 Nations Fear More Than a Trade War?

'Look, Donnie, we can't allow ANY foreign wienerschnitzel to come
into Germany to compete with OUR wienerschnitzel!'*

(first published in North State Journal 6/13/18)

Total free and fair trade.

Unmitigated by tariffs, trade barriers or artificial restrictions established by government to avoid pure unadulterated business competition.

Our trading partners around the world, as well as many business leaders in America, like the way things are right now. The more protection they receive from government, the harder it is to wean them off government assistance to compete on a fair and level playing field worldwide.

President Trump is right to call for an end to all tariffs and barriers and move toward a global free trade zone. He should press to lower nation-specific U.S. tariffs by 10 percent per year and tell each trading partner nation that as long as they lower their tariffs on U.S. goods and services by commensurate percentages annually, the U.S. will continue to trade with them and lower tariffs until they hit zero on both sides of the equation.

Countries will have to reduce their dependence on unfair trade barriers such as overregulation and currency manipulation which will obviate the need for tariffs in the first place.

The very existence of mutually agreed-upon tariffs between nations sets up the threat of retaliatory tariffs that lead to trade wars later. Free and fair trade can only be accomplished in a tariff-free world.

Tariffs are used typically to protect domestic industries in developing countries that want to grow up the economic ladder to modernity. However, once protected, an industry always wants to “stay protected,” be they in America or overseas.

The Canadian tariff on U.S. milk is 270 percent to protect the interests of 11,000 Canadian dairy farmers. Not the consumers.

In 1791, America was “China” in terms of trade piracy and protectionism. Treasury Secretary Alexander Hamilton wrote the first “Report on Manufactures” which encouraged the nascent government to pay spies to steal English textile manufacturing secrets and bring designs of textile machines back to New Jersey.

It worked. Soon textile mills were all over New England only to be lured to North Carolina and the South a century later by the attraction of cheap hydroelectric power supplied by the Southern Power Company, soon-to-be Duke Power, and other trade incentives such as “cheap labor” costs.

Once a nation has established itself as a stable economy and player on the world stage, the need for prohibitive tariffs and trade barriers diminishes exponentially.

China is now the second-largest economy in the world behind the U.S. They are no longer a “developing” country in need of tariff protection.

They are an economic powerhouse.

China achieved economic success partly due to economic reforms under Deng Xiaoping in 1978 but predominately through unfair trade practices. The Chinese government has engaged in imposing excessive regulatory hoops for foreign companies entering the Chinese market; deliberate manipulation of their currency to maintain price advantages over foreign competitors and serious theft of U.S. technology and ignoring U.S. trademark and patent protection that would make even Alexander Hamilton blush in admiration.

Milton Friedman argued that American consumers benefit from other nations acting so stupidly since they are using their resources to provide cheaper products to American consumers which meant Americans could enjoy a higher standard of living regardless of how unfair foreign trade practices were.

That may be true. But wouldn’t every person on this planet benefit from a perfect trade world absent any tariffs or trade barriers?

Prices would fall precipitously across-the-board around the globe. Nations that hold natural competitive advantages in certain resources and talent would produce and sell top-quality goods and services to the rest of the world and receive high quality goods and services from other nations in return.

Economic reality ultimately trumps human manipulation of trade at every turn. We don’t need new trade agreements built on mercantilist tariffs and protectionism.

We need a new world order of zero tariffs and trade barriers. Everywhere.

*photo courtesy of Bundesregierung/Jesco Denzel/Handout via REUTERS German Chancellor Angela Merkel speaks to U.S. President Donald Trump during the second day of the G7 meeting in Charlevoix city of La Malbaie, Quebec, Canada, June 9, 2018. 

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The Danger of 'Latent Hypocrisy' in American Politics

(first published in North State Journal, 6/6/18)

Do you think you are a completely fair and objective evaluator of politics?

Take this test:

‘Donald Trump is a completely immoral man and shouldn’t be president of the United States!’

Agree or disagree?

Now do this: Replace ‘Donald Trump’ with Bill Clinton and see if you can say the same thing.

‘Bill Clinton is a completely immoral man and should not have been president of the United States!’

No ifs, ands, or buts allowed. No moral relativism on a scale of your choice. No saying ‘Well, Bill Clinton may have been bad but Donald Trump is worse!’

If you can’t say exactly the same thing about both men, you probably have ‘latent hypocrisy’ and you don’t even realize it.

Yet.

Latent hypocrisy is what is really hurting our political discourse lately. The inability not only of politicians themselves but commentators, news reporters and partisans to honestly admit both the good, the bad and the ugly about their side as well as the other side makes it virtually impossible to gain any traction on the truth, or as close of an approximation to the truth as we can humanly achieve.

We all know what ‘blatant’ hypocrisy is. That is where elected politicians know they are playing certain roles in public debate and staking positions out in public to frame the issue from both ends and to see a parameter within which a compromise can be hammered out.

Republican President Ronald Reagan and House Democrat Speaker Tip O’Neill used to routinely set out pretty harsh lines in public against one another in the 1980’s when Democrats held insuperable 85+ seat majorities to satisfy activist partisans on both sides. However, they would retire in the evening to play gin rummy, drink scotch and trade stories and jokes before settling down to some serious reasonable compromise they would both be willing to accept for the good of the country at large.

Not just for the good of their respective political parties.

North Carolina Democrat Senator and former Governor Terry Sanford and Republican Senator Jesse Helms grew up together in North Carolina politics as Young Democrats before Helms ran as a Republican in 1972. They would stake out diametrically opposed positions in public on an issue that made some people think they hated each other. Then they would go behind closed doors and hammer out a compromise because of their life-long friendship to get things done rather than waste time with endless and many times senseless yammering and posturing in public.

As long as political people acknowledge their ‘blatant’ hypocrisy in public is a tool to the ultimate end of a solution to the problem at hand, it can be accepted and used to good effect.

It is when people don’t recognize they have an inherent bias that troubles arise. If you think you are always right and your opponent and their party is always the Spawn of Satan, you will never drop your guard behind closed doors and give an inch on anything.

Your supporters and partisan followers won’t either. Who then go on talk shows to talk about the speck in the opposing side’s eyeballs when they have a railroad tie sticking out of both of theirs.

Try this exercise in the weeks to come. Anytime you hear someone on the other side say something nasty or terrible about your candidate or political party, say the same name of your favorite candidate or party and see if you can say it out loud in front of your spouse, friends or colleagues.

If you can’t say it without swallowing your tongue and breaking out into hives, then you are part of the problem.

If you can say it, congratulations on being an adult in a world of arrested development.

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'Donald Trump Didn't Even Collude With The Republican Party in 2016!'

'Ve must get Donald Trump elected, dahlink!'

(first published in North State Journal 5/30/18)

Late last year, over drinks with a long-time veteran southern Republican political operative, he leaned over and fairly shouted:

‘Heckfire! Donald Trump didn’t even collude with the GOP to get elected in 2016! How could the Russians have put up with him long enough to ‘col-lood’ to beat Hillary Clinton?’

He has a point. Most of the money and media time spent in 2016 was decidedly against Donald Trump, not for him. How did hackers from Russia figure out how to overcome all that opposition to help him win, if in fact, they did?

The Mueller team reported the Russians spent $1.25 million per month which, when compared to the $2.2 billion that was spent from all sources on the presidential race, would account for maybe 0.5% of the total amount of money spent in 2016.

When you consider how much disinformation was flying around the internet from all sources from 2015 to 2016, heavily negative against Trump from Republicans and Hillary supporters alike, if the Russians disproportionately made a decisive impact with 0.5% of all money spent, they really were magicians to begin with.

Foreign involvement in any election is bad. In 2015, President Obama was accused of using taxpayer funds to meddle in the Israeli election of Prime Minister Netanyahu. That was ‘bad’ just as well.

The open channels of the internet make it possible for any hacker to interfere anywhere they want.

However, it is impossible for any single person on the globe to influence an American political campaign all by themselves due to that same degree of openness.

If the Russians figured out how to get ‘their’ candidate elected in America with the limited amount of funds they spent on fake Twitter accounts and ads against the avalanche of money that was spent to defeat Donald Trump from all sides, they should sell that secret potion. Every campaign manager, pollster and operative in America would pay millions for it.

Many people make voting decisions solely on name recognition. Others vote based on a candidate’s appearance and demeanor. If one candidate is more well-known than the other and they are more appealing, they usually win.

During any presidential election cycle, any number of factors can determine which candidate wins or not. Lack of enough money usually is the determining factor. A candidate who can’t buy enough TV or social media ads to tell voters who they are or why the other candidate is ‘so bad’ is probably going to lose.

General organizational skills such as calling voters or knocking on enough doors to get your people out to vote play important roles in every election.

What is the greatest ‘get-out-the-vote’ mechanism? Motivation on the part of voters. They are either highly motivated to vote for one person out of hope or against the other candidate out of fear. No amount of ‘fake’ Twitter accounts or ads can manufacture or defeat those waves of voter sentiment once they hit a crescendo.

The choice to ‘blame Russian hackers’ for Hillary Clinton’s defeat in 2016 came right from Hillary Clinton and her top advisors herself. Political reporters Jonathan Allen and Amie Parnes wrote in their book, ‘Shattered’, ‘…(Hillary’s) team coalesced around the idea that Russian hacking was the major unreported story of the campaign…’ less than 24 hours after her concession speech and they concocted a media strategy to spin her loss on them.

Not on anything she did wrong in the campaign.

Lo and behold, the media took the bait and swallowed it. We are now 1 year into the Mueller Investigation with no end in sight and close to $20 million of taxpayer money spent.

Russian hackers didn’t cost Hillary Clinton the 2016 election. She lost it fair and square. It is time for this version of the ‘long national nightmare’ to end.

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If Taxpayer Money Is Involved, Socialize The Upside And The Downside

(first published in North State Journal 5/23/18)
What is ‘welfare’ in the government sense anyway?

Merriam-Webster defines it as such: ‘aid in the form of money or necessities for those in need’.

This definition should be clarified with a friendly amendment: ‘..or who have the political clout to get elected officials use public taxpayer money to pay for what they want’.

Case in point: Should any public money be used to refurbish or replace Bank of America Stadium now that hedge fund billionaire David Tepper has purchased the NFL Carolina Panthers and Bank of America Stadium from Jerry Richardson?

From purely a philosophical musing viewpoint, the answer is no. Rich people are rich and will remain rich regardless of whether the average taxpayer antes up any tax dollar to help them pay for the stadium for the professional sports team.

They are ‘business people’. The NFL is a business. They are not investing in any professional franchise unless they are really confident they are going to make a profit when they sell it one day down the road.

Local municipal and state governments have been persuaded many times to obligate their constituents with user taxes or loan guarantees by the promise of more jobs created and economic growth generated from the ‘public-private partnership’ of building a professional sports stadium.

But the ‘public’ part of that partnership ends when the profits roll in. Then it is all ‘private’.

In 1995, former Washington Bullets, now Wizards, owner Abe Pollin privately financed the construction of the MCI Center, now Verizon Center, in the middle of downtown Washington, DC.

His personal risk-assumption and financing sparked a renewal and rebirth of downtown DC which still has momentum today.

Jack Kent Cooke privately financed the construction of The Forum for his NBA Los Angeles Lakers and the construction of Jack Kent Cooke Stadium, now FedEx Field in Landover, Maryland for his NFL Washington Redskins.

Successful businessmen used to be proud to be able to finance their own football stadiums on their own without taxpayer funding, or ‘corporate welfare’ as it is now known.

Rich business people didn’t get that way by not being smart and savvy. They understand financial and political leverage and they use it to lower their out-of-pocket costs in any business transaction.

Including the purchase of professional sports franchises and construction of new stadiums.

If they are going to use leverage to get a lower cost for their private investment, shouldn’t local municipalities use their financial and political leverage to get more in return if they are going to do it anyway?

Why not ask for a set-aside of say 10,000 seats per game for a lottery for any taxpayer who wants to attend an NFL game? Hundreds of thousands of Mecklenburg County residents probably have never attended a Panthers home game in the last 22 years. If they are on the hook for any public funding in any way, shouldn’t they get to go to one game for free in return for their investment of public taxed dollars?

If a locality floats a tax-exempt or general obligation bond to help build a stadium, whether those bonds are retired quickly by PSL licenses or not, shouldn’t they be considered part of the ‘ownership’ group in some way?

Perhaps the locality should ask for a 10% convertible ownership stake in the franchise so that when it is sold for $10 billion 25 years for now, $1 billion will be made available for the local budgets to build new schools, pay teachers more or pave the darn local roads.

If elected officials are going to be sold on ‘public/private partnerships’ for professional sports, why not ‘socialize the upside’ as well as the downside?

Or follow the lead of Abe Pollin and Jack Kent Cooke and privatize both sides of the equation.

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You Deserve A Gold Medal!

(first published in North State Journal 5/16/18)

CBO estimated that the federal government collected a record amount of your money, er, ‘taxes’, in April, 2018, $515 billion, a new all-time record!

Congratulations!  Don’t you feel like you should get a gold medal or something? How about a Congressional Order of Merit to thank you for paying for the programs everyone wants?

$515 billion in taxes collected is $59 billion, or 13%, higher than April, 2017. Individual income and payroll tax collection was $73 billion higher, or 20%, than 1 year ago. Final payments for taxes in April was $60 billion higher than April a year ago.

We collected more tax revenue income from individuals in April, 2018 than we ever have in any single month in the 229-year history of the United States of America.

Despite this record influx of tax revenue to the US Treasury, the budget deficit for the first seven months of FY 2018 went UP by $37 billion over the same period in 2017.

How can that possibly be?

More federal intake of taxes will never balance the budget as long as Congress and Presidents spend more money quicker at a higher rate.

Take a look at the makeup of all layers and levels of taxes paid to Washington in 2016:

Those are the only ways to squeeze blood out of your turnip via tax policy. So far, that is.

More money going to Washington from your pocket or checking account either through economic growth or higher tax rates is the same thing: More tax revenue.

More tax collection doesn’t matter if Washington continues to spend money like drunken sailors.

Which, as Ronald Reagan said, was an insult to all drunken sailors.

Here is why budget deficits have gone up this year in spite of record tax revenue collection in April:

‘Outlays for the first 7 months of FY 2018 were up $121 billion or 5% over the same period in 2017’ according to CBO'.

Spending for military programs is up 5% due to recent bills passed by Congress and signed by
President Trump. Homeland Security spending is up $17 billion or 59% due to disaster relief efforts. Social Security spending is up $23 billion or 4% because of COLA inflation adjustments and more beneficiaries retiring.

The ‘scary’ increase over the first 7 months of FY 2018 was in outlays for net interest on the public debt. Net interest costs rose $25 billion or 14% because of higher interest rates and adjustments upwards for their inflation-protected securities issued.

Interest rates are still low by historical standards. We know from history that the one thing no government has ever been able to manage fully has been when inflation fears get out of hand and then interest rates escalate to accommodate for those inflation fears.

As recently as 1979-1981, inflation reached 12% in the United States and treasury bill rates peaked at 14.5%. 14.5% interest rates on current national debt would mean $2.175 trillion out of our $4.2 trillion federal budget would go solely to pay holders of US bonds.

Will this superior generation of tax revenue continue to grow for the rest of the year?

Maybe. Perhaps. Some of tax collection depends on timing of payments due to holidays and tax considerations.

However, if the Trump/GOP tax cuts work perfectly and the economy continues to grow robustly, we might see a 10% increase in tax revenue collection for the rest of the year.

But that would only generate $333 billion more in surprise surplus revenue over the course of the year. At current levels of spending, we would still have over $500 billion in deficit-financing for the rest of the year.

The key to fiscal and financial sanity is through serious Congressional control of spending to below 3% annual growth per year. Forever.

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'Happy Birthday Karl Marx!' (?)

(first published in North State Journal 5/9/18)

May 5th was the 200th anniversary of the birth of Karl Marx.

He was celebrated and toasted in many circles.

The New York Times published an essay titled “Happy Birthday, Karl Marx! You Were Right!”. Bernie Sanders supporters sported bumper stickers during the 2016 campaign that read ‘Welcome To The Terminal Stages of Capitalism!’

22% of millennials today have a favorable view of Marx. 50% say they would rather live in a communist or socialist country than under capitalism.

While extolling the so-called ‘virtues’ of Marxism, Marx apologists somehow always fail to include the historical fact that 150 million or so innocent citizens have been murdered under diabolical Marxist communist dictators such as Stalin, Mao Tse-tung and Pol Pot.

Which begs the question: “If communism is so great, why do communist dictators have to kill so many millions of people to keep it intact?”

Americans do not kill or imprison people if they want to leave the United States voluntarily to live somewhere else. They just leave. Unlike from China, Cuba or North Korea.

If someone chooses to go off the grid to live off the land or in a commune in the US, no one from the government will try to force them back into corporate life and punch a time clock. Capitalism doesn’t use a police state to force a citizen to work as has been the case in many communist countries.

The problem arises when people who think communism is so great that everyone should be forced to live under it. ‘Voluntary’ communism is fine if people want to share resources and live non-materialistic lives together. ‘Forced’ communism under someone else’s rule goes against the very freedoms we sadly take for granted in 2018 America.

Consider the following tenets from the ‘Communist Manifesto’ published in 1848 by Marx and Engels:

• “abolition of property in land” 
• “a heavy progressive or graduated income tax” 
• “abolition of all right of inheritance” 
• “centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly” 
• “centralization of the means of communication and transport in the hands of the state”

Sounds strangely similar to many of the Progressive or Bernie Sanders socialist platforms in the last election, doesn’t it?

Contrast this with the philosophy of freedom put forth by John Locke, Adam Smith and Thomas Paine well before Marx that resulted in the US Constitution. Property rights, intellectual and copyright protection, anti-monopoly laws, ability to build wealth and pass along to heirs in spite of a high estate tax, decentralization of decision-making and financial services down to the individual level, not in Washington or New York City, are central tenets of our American way of life and the complete opposite of what Marxist doctrine would allow.

Millennials should very carefully reconsider their infatuation and dalliance with Marxism. Chances are very high that the person who takes over control of any ‘Marxist Utopia’ would shut down a massive range of freedom of choice to stay in power.

Do you like Twitter? Marxist regimes hate Twitter. Too much ungovernable information flying around all the time.

Do you like Uber? What if Marxists decide that everyone has to use the ‘Federal Taxi Cab Service’ (FTCS) instead so they ban Uber and make everyone pay the same fare and ride in the same 1970s Crown Victoria model automobiles so everyone will be ‘equal’?

Karl Marx wrote for a different time and a different era. Mindless adoption of the tenets of Marxism without understanding the violence and loss of freedom for everyone that comes with Marxist governance is a dangerous proposition.

Maybe by the 300th anniversary of his birth in 2118, the world will have learned those sad lessons and leave his philosophy on the trash heap of history and not celebrate them in any quarter around the globe.

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Historically Average Economic Growth Will Solve Everything

(first published in North State Journal 5/2/18)
If you are despondent about the state of modern American politics and the inability of both parties to engage in serious bipartisan efforts to balance our budget and start to dig out from underneath the Himalayan mountain of debt we are building, never fear:

There is a way to get out from under it all without Congress ever taking any congressional action whatsoever: return to historically average real economic growth of 3% per year in the United States for the next 30 years.

3% real economic growth is not far from our historical average of 3.5% real economic growth in the US since World War II. A combination of invention, patent and copyright protection, productivity gains and freedom has fueled the massive expansion of economic opportunity and advancement for millions of Americans since 1945.

If a switch could be turned on to spit out a guaranteed 3% rate of annual real economic growth in the economy, Congress could adjourn until the year 2047 and all of our economic and fiscal problems would be solved.

Including our exploding national debt.

Congress would not have to pass any new tax laws; make any spending changes; start any new entitlement programs; or even attempt any politically painful efforts to reform the existing entitlement programs, Medicare, Medicaid and Social Security.

Just let the economy grow at or above the 3% real rate of growth annually.

The Congressional Budget Office recently published their April update to the Budget and Economic Outlook from 2018-2028.

Federal debt held by the public is expected to reach 100% of GDP by 2028 under current assumptions.

‘Debt held by the public’ is the only debt CBO recognizes as being ‘economically significant’ since it has to be serviced by monthly interest payments to holders of debt instruments. CBO does not recognize intra-governmental debt as being economically significant, mostly in Social Security, since interest on such debt doesn’t get paid each month but is rather ‘imputed’ and will be paid later by higher taxes or reduced spending.

CBO forecasts a bump up in ‘real’ economic growth this year and next but sees growth falling long-term back to the 1.9% average annual growth rates we saw under President Obama.

Stephen Moore, an economist at the Heritage Foundation and advisor to the Trump Administration, says real GDP growth rates should far exceed 1.9% per year as long as Congress and Administrations do not throw a wet blanket on the economy with higher taxes and more regulations.

He used CBO data to show what average economic growth rates of 3% annually could do to our national debt over time. Debt held by the public could fall to a relatively ‘measly’ 50% of GDP in 2047 albeit at a level of about $32 trillion in an economy of $64 trillion.

Even if you don’t like President Trump or Republicans in general, you should be pulling for the recently passed tax cut package and the economy to work beyond everyone’s wildest dreams. For the next 30 years really.

Why?

Because there is only one other way to pay down national debt if Congress will not address the rise in the cost of entitlements or raise taxes to balance the budget:

Higher inflation.

For centuries, kings, dictators and republics have used inflation to pay down national debt with cheaper currency over very long periods of time. European countries have only recently paid off debts incurred from World War I with money that is not worth anywhere near what it was worth before The Great War.

Higher inflation hits the poor and elderly the hardest every time it happens.

Real economic growth over 3% per year for the next 3 decades might be the only way out of the long-term American debt trap. Especially if Congress does nothing to curtail entitlement spending.

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The Scariest Budget Chart You Will Ever See

(first published in North State Journal 4/25/18)

Every single tax dollar collected by the US federal government in 2039 will be used to pay for just 4 things in the budget:

• Medicare
• Medicaid
• Social Security
• Interest on the national debt

This includes 100% of all individual and corporate income taxes; OASDI (Social Security) payroll taxes; Medicare payroll taxes, estate taxes and excise taxes.

Every dollar we spend on other federal programs will be borrowed from foreign governments such as China or Saudi Arabia; corporations and high net worth individuals.

That includes national defense, homeland security, environmental protection, welfare, subsidized housing, Pell grants and any other federal program you can think of or benefit from.

What does this ‘crowding out’ effect mean?

We can already see what it has done over the past 60 years. Non-entitlement discretionary funding, essentially the ‘guns-and-butter’ part of the budget, accounted for 68% of the 1962 federal budget.

Today, those same programs account for 32% of the budget. You can argue all you want about the need for more money to be dedicated to education, housing or welfare but the truth is, as a percentage of the federal budget, those programs have already been hit proportionally hard since 1980 by the slow but steady expansion of entitlement programs.

‘Why not raise taxes on the rich and corporations?’

‘Because it won’t work’ is the honest answer.

We have raised and lowered taxes on everyone and everything over the past 40 years. What has been the upshot of it all?

The American public has paid about 18% of GDP to Washington per year under all tax plans, regimes and disciplines. For whatever reason, either through aggressive tax-planning or deliberate underpayment of taxes, the American taxpayer has been remarkably consistent in paying taxes amounting to about 18% of GDP since 1970.

The only responsible way to run any budget for any government, corporation, organization or household is to control the rate of growth in spending or reduce it responsibly.

The sad, and odd, thing is that virtually all of our fiscal budget deficit and national debt issues today could have been avoided with a few legislative changes to both Medicare and Medicaid as far back as 1990. Had growth in both programs been held to the rate of inflation in the economy rather than allowed to grow at double or triple the rate of inflation annually since then, we would be talking about massive annual surpluses today and virtually zero national debt.

Annual tax cuts would have been the norm rather than the exception.

Social Security could have been reformed as well by changing the ‘bend point’ in calculation of benefits, which would have contributed to a further flattening out of federal spending as well.

Instead, after experiencing a too brief period of adult leadership and sensibility about the federal budget from 1997-2001 when 4 budgets produced surpluses instead of deficits, we now have to contend with the implications of dealing with rising interest rates on servicing national debt of $21 trillion and rising fast; critical national security concerns around the world, a burgeoning senior population due to millions of Boomers now retiring and a plethora of other public policy issues that have not been solved by either political party.

What can we do to solve our budget dilemma?

Congress can cut spending. Which it should.

Congress can try to raise taxes. But it won’t work as we have seen over the past 40 years.

The economy can expand at a 3% annual rate for 10 years instead of the desultory 1.9% average rate of growth under President Obama for 8 years.

Some believe we can grow at 4% per year or perhaps even 5% for some period of time.

If American economic growth out-runs our fiscal irresponsibility, it will be the greatest escape act since Harry Houdini.

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What To Do About College Athletics

(first published in North State Journal 4/18/18)

Big-time college athletics is out of control. But should universities lose their historical mission to educate young people as a result?

College athletics, primarily football, has been a lucrative way to make money for the school and get publicity for the university.

Wallace Wade was head coach of the Alabama Crimson Tide in the 1920s and led them to 3 national titles in 3 Rose Bowls. He started the Alabama dominance of college football.

Duke University Chancellor Preston Few was looking to bring much-needed publicity to the new campus that opened its doors in Durham in 1924.  The Alabama program under Coach Wade was doing pretty well so Few contacted Wade for his suggestions for a new head coach.

Coach Wade surprised everyone, including Chancellor Few, by saying he was interested in the job under the following conditions: he wanted to be head football coach, athletic director and intramural program director since he believed in using athletics to build men out of boys.

He got all three plus a generous salary during the Depression and a cut of the gate receipts. When he filled up Duke Stadium with 50,000 spectators to watch the Blue Devils play national powers such as Pittsburgh and go to 2 Rose Bowls, Duke University got the nationwide publicity Chancellor Few wanted and Coach Wade went to the Hall of Fame.

Coach Wade and universities offered athletes a free education with room and board which they could use to become doctors, lawyers or businessmen if they went to class, did their homework and did well on exams.

Which is the original purpose of higher education in the first place, right?

Back then, the allure of pro sports was not what it is today. College football players drafted in 1939 got paid $100/game to play against older men who had other jobs to make ends meet during the year.

Today, an elite athlete could make tens of millions of dollars if they go right to the pros from high school in basketball or leave after 3 years in college football.

However, such lucrative contracts are only given to approximately 1.5% of all college football or basketball players. 1 out of every 1860, or 0.054%, high school basketball players ever make it to the pros.

Going to college to get a free education plus room and board for 4 years is a good deal for almost every college athlete who plays football, basketball, baseball, lacrosse or soccer.

Especially benchwarmers.

The NCAA should consider the following proposal which is based one thing on which all Americans can agree:

Freedom to choose.

Any high school basketball phenom who wants to go right to the pros can choose to do so just as any high school baseball star can do right now.

Any player has 4 years of playing eligibility at any college from high school graduation. If they get cut from the pros after 1 year, they have 3 years of eligibility remaining; after 2 years, 2 years of eligibility remaining and so on. They can be recruited by any college at any time from the NBA to the G League to the Turkish League overseas.

If the goal of higher education is to give young players a great education in return for entertaining the rest of us who wished we could play basketball at their superior level, there should be no barriers to entry to any college if they flame out in the pros.

Coach Wade used to tell every prospect he recruited: ‘Duke University is going to do more for you over the course of your lifetime than you will ever do for Duke on the football field, young man. Take advantage of this marvelous gift of an education’.

Why not heed that same advice in the 21st century?

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How Many Business Regulations Are Enough in North Carolina?

(first published in North State Journal, 4/11/18) 

Does anyone in North Carolina know how many regulations exist in the North Carolina Administrative Code (NCAC)?

More importantly, is there anyone in the state of North Carolina who has read all of them and understands all of them and what their collective impact is on North Carolina business both good and bad?

If you guessed 109,350 restrictions in the form of regulations consisting of approximately 8.7 million words, you win.

Mark Twain estimated he wrote between 1400 and 1800 words per day on his way to becoming the most famous author in American history. At that rate, he would have had to write for 15 years straight to match the number of regulations now on the books in North Carolina.

According to the Mercatus Center at George Mason University, it would take 483 hours, or 12 weeks straight at 40 hours per week reading at a rate of 300 words per minute to read all existing North Carolina state regulations.

That is not too bad. They estimate it would take a person 3 years to read the 112 million words in the US Code of Federal Regulations (CFR), all of which affect businesses in North Carolina as much or more than state regulations do.

If you ever want to understand why so many business executives complain about the heavy hand of government bureaucracy, look no further than the 120+ million words in federal and state regulations.

What does it mean in practical terms for any business ranging from small businesses to the very large corporation?

It means that people must be hired to make sure the business complies with the state and federal regulations. It means time and effort must be diverted to complying with every regulation instead of selling more product. Any law or regulation opens the door for litigation which further depletes money and human capital from the primary objectives of the company which is to sell more product and produce a profit for the shareholders.

It means money from sales revenue or investment capital has to be diverted to pay for people who do not do anything more than read regulations and make sure the company complies with them which adds costs to the final product bought by the consumer.

Are all regulations ‘bad’?

Certainly not. Labor safety laws and environmental protection certainly have their place in the modern world of commerce and manufacturing.

But when is the number and scope of regulations ‘too much’ and in dire need of repeal or revision?

The National Association of Manufacturers (NAM) published a report in 2014, ‘The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business’, that estimated federal regulation compliance alone costs businesses roughly $2 trillion per year, or about 12% of GDP annually. Federal regulations cost about $10,000 per employee with small businesses being more adversely affected than large corporations because of fewer employees over which to amortize the cost of compliance.

Added together with the costs of state regulatory compliance, the cost of complying with regulations to any business are enormous every year.

The North Carolina Administrative Code should be thoroughly examined and reviewed with the goal to remove as much administrative burden as possible from North Carolina business operators and entrepreneurs. Surely there are regulations that no longer apply to the current modern economy.

The Texas legislature, for example, has a one-year session but dedicates the off-year to a thorough review of one agency to determine whether it is efficient and achieving its stated intended mission. If they find antiquated regulations and laws on the books, they repeal them the next session.

It would be a surprise to find less than 25% of current NCAC regulations that could not be repealed with bipartisan support. It is worth the effort to find out.

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'I, Bowtie'*

Augusta Stripe Bowtie by High Cotton

(first published in North State Journal, 4/4/18)

‘I, Bowtie, simple though I appear to be, merit your wonder and awe. If you become aware of the miraculousness which I symbolize, you can help save the freedom we want in America.

Not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn't it?

A bowtie appears simple. There's cotton or silk, dye, thread, a bit of metal and a printed label.

I, Bowtie begin with a bale of cotton, grown in the South. Think about the tractors and combines used in harvesting and taking the cotton to a nearby gin operation in New London, NC. Think of all the people and numberless skills that went into the fabrication of those magnificent machines: mining ore, making steel and its refinement into complicated machines and motors; farm hands that planted cotton seeds and tilled the soil and looked after the crop all summer long.

American cotton is shipped from the cotton gin to a spinning operation in Thomasville to be spun into usable thread. American cotton thread is shipped to weaving operations in England or Portugal to be woven into fabric that my Southern creators have designed, fabric which might come back to any one of the thousands of people involved in this miraculous journey in the form of bowties, long ties or cummerbunds if they order them on-line.

Thousands of workers transport fabric on ships or by air freight back across the Atlantic to a cut-and-sew operation in Pilot Mountain. Dozens of seamstresses take turns sewing bowties after this precious fabric has been cut to precise specifications. Then it is shipped to a fulfillment center in Butner where dozens of employees pack and ship bowties to individuals and retail stores across the globe.

No single worker does any of this work because he himself individually wants a bowtie.

There are many among this vast multitude who have never seen a bowtie nor would they know how to tie one if they had it. Each of these thousands of people sees that he can exchange his tiny know-how in the process for the goods and services he needs or wants even if it is not me, a simple Southern bowtie.

There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring a bowtie into being.

Instead, we find the ‘Invisible Hand’ at work.

I, Bowtie, am a complex combination of miracles: cotton, metal, weaving and so on. An even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding!

Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a cotton plant in the first place.

If one is aware that these know-hows will naturally arrange themselves into creative and productive patterns in response to human necessity and demand—that is, in the absence of governmental or any other coercive masterminding—then one will possess an absolutely essential ingredient for freedom: a faith in free people.

Freedom is impossible without this faith.

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can.

Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the ‘Invisible Hand’ of freedom and personal self-interest, integrity and fairness.

This faith will be confirmed. I, Bowtie, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cotton plant and the good earth.’

 *adapted from the classic "I, Pencil" essay by Leonard Read (1898-1983) who founded the Foundation for Economic Education (FEE ) in 1946 and served as its president until his death. 

"I, Pencil," was published in the December 1958 issue of The Freeman.

High Cotton website: https://www.highcottonties.com/collections/spring-2018

(My wife and sons started High Cotton in 2010 and have been an amazing example of how the free enterprise system works when people do the right thing with integrity and honor. It has been a privilege to walk alongside of them and this post is a tribute to their hard work and discipline and success)

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Why Did Evangelicals Vote For President Trump in 2016?

(first published in North State Journal 3/28/18)

Michael Gerson wrote ‘The Last Temptation’ in The Atlantic recently where he struggled to understand why, and how, evangelicals in America supported Donald Trump in the last election and have stood by him despite his flaws in moral judgment and character.

Political cognoscenti and #NeverTrumpers such as Mr. Gerson who grew up in the ‘values-based’ campaigns of the 1980s worry that the Trump Administration is ‘the beginning of the end for the American Republic’ or perhaps plain and simply ‘The End’ of all things sacred in American politics.

They fail to understand this simple premise: ‘Why would anyone want to vote for a candidate who will not support policies to make their lives better?’

American presidential campaigns are not about selecting the ‘nicest’ or ‘most moral’ person to occupy the White House and make the most important decisions in the world on a daily basis. It would be nice if they were, but history has shown they were mostly not.

American voters, be they Christian or not, want the following things in order:

• A Job
• A Good Job
• A Better Paying Job
• A Way to Support Themselves and Their Families 
• Protection against crooks and criminals in the streets where they live
• Defense against foreign invaders and attacks.
• Freedom from being told what to do and how to think all the time by elected politicians
• And then everything else comes in at about Priority #50 by comparison

Evangelicals, along with tens of millions of other citizens, did not see any appreciable wage gains adjusted for inflation under Bush 43 and certainly not under Obama for 16 long years.

They saw the US attacked on our soil for the first time since Pearl Harbor on 9/11. They saw the greatest economic crash since 1929 and the resulting Great Recession that ranked just behind the Great Depression 80 years previous.

They did not see any incumbent elected politician doing anything that helped them out personally in a major way. So they took a chance on the ultimate outsider and rolled the dice hoping he would shake things up in Washington, DC so they could find a good job or keep the one they had.

Being a ‘moral’ or ‘religious’ person is no guarantee of being an effective President. Jimmy Carter may have been a great Sunday School teacher but he was one of the worst decision-makers and leaders in White House history.

The dumbest thing a person can do is vote for someone who does not help them improve their station in life. What possible good would it do to vote for anyone who does not help them live better, more free and prosperous lives? Why would anyone intentionally vote for a candidate or party that passes legislation which leads to a lower standard of living and income for them and their families?

No one wants to elect someone who makes their lives more miserable. No sane person at least.

Political consultants always tell their candidates the same thing: 'This campaign is about JOBS, JOBS, JOBS!'

That is what fueled the evangelical support for Trump that is still strong. They now see their pay checks going up due to the tax cuts and the better economy; they see more job opportunities for themselves and their children and friends and they feel safe when Trump talks tough in his Queens way of talking to our adversaries overseas.

Just as other religious and non-religious people who voted for Trump across the board even though many held their nose doing it while thinking: 'Well at least he ain't Hillary!'

Politics is not about a candidate’s personal religious belief, manners or character as Michael Gerson and others want to believe. Politics is about citizens electing representatives who will get things done that help them lead better lives for themselves first and everyone else as well.

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"Enforcement of Trade Agreements' or 'Trade Wars'?

(first published in North State Journal 3/21/18)

President Trump’s announcement of tariffs on steel and aluminum set off a spate of comments comparing his actions to the Hawley-Smoot tariff act that many feel precipitated and certainly exacerbated the Great Depression of the 1930s.

Is he starting a ‘trade war’ for no good reason at all? Or is he positioning the US for a much-needed review and rewrite of NAFTA and other bilateral and multilateral trade agreements?

The history of American trade policy has not evolved much since the end of World War II. After the war, the highest priority was placed on establishing GATT (General Agreement on Tariffs and Trade) with devastated countries such as West Germany and Japan to help them develop free market economies that would support freedom and democracy.

Making trade concessions to help export freedom and democracy was far more preferable than fighting another world war against them, this time with nuclear weapons.

GATT morphed into the World Trade Organization (WTO) in 1995 which became the forum to govern international ‘free trade agreements’.  The WTO is currently the only mechanism we have to monitor trade between the US and Japan, the EU and China.

One of the industries that became a sacrificial lamb for trade agreements, sadly for North Carolina, was the textile industry. Textile manufacturing was labor-intensive and required relatively low working skills which was perfectly suited for workers in developing countries such as China and then southeast Asia.

As time went on, successive Administrations and State Departments continued to make trade concessions to help nations develop and create jobs primarily as a foreign policy tool, not as an economic tool to defend and protect American jobs.

The only problem is that China has failed to convert to democracy after all these years. And they are clearly taking advantage of our lax enforcement of existing agreements to become the second largest economic power in the world.

Now should be the time to stop using trade as a foreign policy tool and revert to rewriting trade agreements solely on economic fairness and equity grounds to all parties.

Most trade agreements have provisions that call for ‘countervailing tariffs’ in the event a country subsidizes manufacturing, manipulates currency or steals intellectual property rights that lead to a surge of exports to the US. The US, at the behest of the State Department, has routinely turned a blind eye to such grievances and allowed cheaper imports to flood into the States.

After all, who doesn’t want to buy a dozen T-shirts for $10 from Wal-Mart?

In Senator Elizabeth Dole’s office starting January 2, 2003, we sent weekly textile job loss reports to the Vice-President’s office. By August, the total was 52,000 and we were begging the Bush 43 Administration to invoke the surge protections, or countervailing tariffs, already existing in the textile agreements.

In August of that year, Pillowtex in Kannapolis announced it was laying off 7000 people.

‘What is going on with the NC textile industry?’ asked the Vice-President’s office. After close to 60,000 jobs had been lost to unfair textile importation in 8 months.

President Bush signed an executive order raising tariffs on 3 categories of lingerie from China but by then, the damage was done and the response was too little, too late.

Enforcing trade agreements has been the US problem for decades. It is not a ‘trade war’ to demand our economic allies and partners abide by the rules of fair but free trade and not take advantage of US workers.

Perhaps President Trump is opening a gambit to force trading partners back to the table to get more favorable treatment for American workers and force China, among others, to play fair.

That is not a ‘trade war’. That is ‘insisting on fair play’, ‘demanding enforcement of trade agreements’ and ‘negotiating to win’.

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'We Will Have 5% GDP Growth Again In America!'

'Morning in America--Part 2', 2017-2018

(first published in North State Journal 3/14/18)

The great thing about making predictions is that people only remember when it is correct and the vast number of prognosticators were wrong.

Unless the prediction is so out-of-bounds proven wrong that it is never forgotten as one of the greatest bone-headed predictions ever.

Such as when Nobel Prize-winning economics professor Paul Krugman on Election Night, 2016 said: ‘If the question is when markets will recover, a first-pass answer is 'never'".

Ouch.

Economists get ridiculed, deservedly so, for breathlessly predicting '10 of the last 3 recessions!' However, in 2008, before the greatest Crash since the 1930s, hardly any economist was sounding any alarm bells.  Many were caught on tape saying how great everything seemed at the time and smooth sailing was ahead for the American economy ‘for the foreseeable future’.

Ouch again.

One private economic guru has made the following argument against the backdrop of an army of professional economic forecasts predicting an average of 2.5% quarterly and annual GDP growth for the next 3-5 years:

'We will see economic growth rates well in excess of 3% on a quarterly and yearly basis for the foreseeable future!'

His reasons for the extra economic growth are as follows:

1. Lowering corporate tax rates to 21% down from 35% will raise retained earnings (profits) in American businesses by $2 trillion over the next 10 years according to former Reagan economic advisor Martin Feldstein, now at Harvard.
   
2. Adding to that pool of available cash to invest is the immediate expensing of capital equipment in the first year versus depreciating such assets over 3, 5, 7 or 10 years. Depreciation is a complicated concept for non-accounting types but pairing off the cost of buying modern new equipment against current year revenues in 1 year is far better than spreading it out over a number of years.
   
3. Cash kept in year one will be much larger due to the tax protection offered by immediate expensing even though new, more efficient machines will be financed over a number of years.
   
4. Under old depreciation rules, companies had to account for future tax payments on their balance sheets for several years. With immediate expensing of new equipment, their deferred tax liability goes way down which means they can borrow more money to buy more modern equipment to replace more old inefficient broken-down equipment.
   
5. Productivity rates go up across every industry sector that buys new equipment. When productivity goes up, wages go up; people take home more money in real wage growth on top of the $1000-$2000 tax cuts that are perennial in effect now and a vicious cycle starts to feed on itself upwards in a positive manner.
   
6. The lower 21% tax rate will repatriate, or bring back, to the US $2-3 trillion in corporate profits corporations have held in Europe for a long time instead of being taxed at the previous high 35% rate.
   
7. Large subchapter S corporations will convert to C corporations to take advantage of the new lower corporate tax rate.
   
8. Wage growth should exceed 3% later in 2018 when these changes work their way through the economy.
   
9. We should see slightly higher rates of inflation but that is a good sign after close to a decade of near zero inflation which reflected the relatively dormant state of the economy from 2008 to 2017.
   
10. The capital expenditures of the corporate sector will supercharge companies that build plants and equipment.

'We may see several quarters where economic growth exceeds 5%’ says this expert.


If he is ‘wrong’ and it is ‘only’ 4%, that is far better than any growth rate we have seen since 2000. Young people may finally see what a booming economy looks and feels like.

To their benefit.