Tag: economy

Nobel Prize Winner Analyzes the Obama Growth Gap

I’ve explained before that one of the most damning pieces of evidence against Obamanomics is that the economy is suffering from sub-par growth, something that is particularly damning since normally one expects to see faster-than-average growth following an economic downturn.

In a recent presentation, Robert Lucas of the University of Chicago included a couple of graphs that illustrate this phenomenon. This first chart shows the history of U.S. economic growth over the past 140 years. As you can see, the growth rate was remarkably constant over time, and there were always periods of rapid growth following economic downturns.

Lucas, who won the Nobel Prize in economics in 1995, then looks at the data for the recent downturn and recovery. As you can see, we have been struggling to get back to average growth rates and we have not enjoyed any of the above-average growth that normally follows a recession.

The key question, of course, is why growth has been anemic, resulting in (what seems to be) a permanent loss of output. In his presentation, Lucas warns that bad government policy is playing a big role. He says that “the problem is government is doing too much,” and he specifically highlights the “likelihood of much higher taxes, focused on ‘the rich’” and a “large increase in the role of government” in the healthcare sector.

In his conclusion, Professor Lucas is not overly optimistic about recovering lost output. He doesn’t make any flamboyant claims, but he does note that “European economies have larger government role and 20-30% lower income level than US.”

The obvious connection, as I’ve pointed out on many occasions, is that America is becoming a European-style welfare state and it is unavoidable that we will suffer from European-style economic malaise.

P.S. It should be noted that America’s anemic economic performance in recent years is not solely Obama’s fault. As the White House repeatedly points out, he inherited a downturn. That is completely accurate. My complaint, however, is that Obama promised hope and change but instead has exacerbated the big government policies of his predecessor.

El Salvador’s Unfortunate Lesson

Two years ago in a Cato study I documented El Salvador’s remarkable liberalization process and the significant progress in economic and social indicators that resulted from those free market reforms. I also warned then about how those achievements were threatened by the likely victory of the former Marxist guerrilla group, FMLN, in the presidential election of 2009.

Even though Mauricio Funes, the then FMLN candidate now turned president, has proven to be a relatively moderate figure when compared to his radical left-wing party, El Salvador is reversing many of the gains of the past decade. Mary O’Grady’s column in the Wall Street Journal today, which describes how “the wheels came off” of the “once thriving Salvadoran economy,” is a reminder to all countries not to take progress for granted.

End the Fed: More than Just a Bumper Sticker Slogan?

To put it mildly, the Federal Reserve has a dismal track record. It bears significant responsibility for almost every major economic upheaval of the past 100 years, including the Great Depression, the 1970s stagflation, and the recent financial crisis. Perhaps the most damning statistic is that the dollar has lost 95 percent of its value since the central bank was created.

Notwithstanding its poor performance, the Federal Reserve seems to get more power over time. But rather than rewarding the central bank for debasing the currency and causing instability, perhaps it’s time to contemplate alternatives. This new video from the Center for Freedom and Prosperity dives into that issue, exposing the Fed’s poor track record, explaining how central banking evolved, and mentioning possible alternatives.

This video is the first installment of a multi-part series on monetary policy. Subsequent videos will examine possible alternatives to monopoly central banks, including a gold standard, free banking, and monetary rules to limit the Fed’s discretion.

As they say, stay tuned.

The ‘Every Economist’ Myth

Just days after we rapped Rep. Betsy Markey (D-CO) for claiming that “every economist from the far left to the far right was saying the government needs to step in because there was absolutely no private sector investment,” Rep. Gerry Connolly (D-VA) tells the Washington Post,

You’re darn right I voted for the stimulus. Every economist, including [some] Republican economists … said, for God’s sake, don’t let it go off the cliff.

This is the myth that just won’t die. Markey and Connolly are echoing similar claims by President Obama, Vice President Biden, and even the notoriously unreliable Robert Reich. When Biden said it, Harvard economist Greg Mankiw asked if he was “disingenuous or misinformed” and pointed out:

That statement is clearly false. As I have documented on this blog in recent weeks, skeptics about a spending stimulus include quite a few well-known economists, such as (in alphabetical order) Alberto AlesinaRobert BarroGary BeckerJohn CochraneEugene FamaRobert LucasGreg MankiwKevin MurphyThomas SargentHarald Uhlig, and Luigi Zingales–and I am sure there many others as well. Regardless of whether one agrees with them on the merits of the case, it is hard to dispute that this list is pretty impressive, as judged by the standard objective criteria by which economists evaluate one another. If any university managed to hire all of them, it would immediately have a top ranked economics department.

When Robert Reich tried to claim that “economic advisers across the political spectrum support Obama’s plan,” I pointed out that that claim depended on exactly two names and that the Washington Post had demonstrated that neither of them was in fact a Republican supporter of the $787 billion stimulus bill.

In fact, of course, hundreds of economists went on record against the stimulus bill. The Cato Institute’s full-page ad with their names appeared in all the nation’s major newspapers. The ad and the economists were featured on dozens of television programs.

Which brings us back to the question that Mankiw asked of Biden and that I asked of Markey. Is Representative Connolly really unaware that there was vigorous debate among economists about the so-called stimulus bill, and that hundreds of economists expressed their opposition in every major newspaper? Connolly has lived in Washington his entire adult life. He spent 19 years on a Senate committee staff. He served for 14 years on the Fairfax County Board. He worked as vice president at two large government contractors. Is it possible that he doesn’t read the Washington Post – or the Wall Street Journal, or the New York Times, or Roll Call, the newspaper of Capitol Hill? If so, then maybe he really believes that “every economist, including Republican economists” endorsed the stimulus. Someone should ask him: misinformed or disingenuous?

Obama’s Job-Killing Policies: A Picture Says a Thousand Words

The new unemployment data have been released and they don’t paint a pretty picture – literally and figuratively.

The figure below is all we need to know about the success of President Obama’s big-government policies. The lower, solid line is from a White House report in early 2009 and it shows the level of unemployment the Administration said we would experience if the so-called stimulus was adopted. The darker dots show the actual monthly unemployment rate. At what point will the beltway politicians concede that making government bigger is not a recipe for prosperity?

They say the definition of insanity is doing the same thing over and over again while expecting a different result. The Obama White House imposed an $800-billion plus faux stimulus on the economy (actually more than $1 trillion if additional interest costs are included). They’ve also passed all sorts of additional legislation, most of which have been referred to as jobs bills. Yet the unemployment situation is stagnant and the economy is far weaker than is normally the case when pulling out of a downturn.

But don’t worry, Nancy Pelosi said that unemployment benefits are stimulative!

What’s Behind the Decline in Illegal Immigration? It’s the Economy, Stupid

A Pew Hispanic Center report released today confirms what has been widely known, that the number of illegal immigrants in the United States has dropped sharply since 2007. The real argument is over what’s behind the decline.

According to Pew’s Jeffrey Passel and D’Vera Cohn, the annual inflow of unauthorized immigrants dropped by two-thirds during 2007-09 compared to 2000-05. That plunge has contributed to an overall decline in the total number of illegal immigrants in the United States from a peak of 12 million in March 2007 to 11.1 million in March 2009. Pew calls this “the first significant reversal in the growth of this population over the past two decades.”

Advocates of more restrictive immigration policies have been quick to credit increased enforcement for the decline, but that thesis doesn’t hold up to scrutiny. While enforcement efforts have indeed been ramped up in the past couple of years, the change has not been dramatic. Resources devoted to border and interior enforcement have been increasing pretty steadily since the early 1990s.

It seems implausible that more recent, incremental increases would have such a visible effect when years of increased enforcement efforts before now so visibly failed. In fact, the same restrictionists who constantly complain that nothing has been done to enforce our immigration laws are among those now praising that supposedly non-existent enforcement for the drop in illegal immigrants. They can’t have it both ways.

The more obvious explanation is the steep economic recession that began to bite in 2008. The downturn has been especially brutal in the housing and construction industries where many illegal immigrants found employment during the previous boom. As evidence, the decline in the number of illegal immigrants has been steepest in those states, such as Nevada, California, and Florida, where the housing downturn has been the most severe.

When the economy revives, I predict the inflow and population of illegal immigrants will begin expanding again, too. This problem will not be solved until Congress and the president work together to enact comprehensive immigration reform that widens opportunities for legal immigration.

Media Feeds America’s Skepticism about Trade

As usual, Dan Griswold does an excellent job today correcting fallacies about trade and the trade deficit that continue to be perpetuated in the mainstream media (particularly at the Washington Post).  

I just want to add my two cents without belaboring any of Dan’s succinctly-made points.  (Besides, I’ve harped on and on and on and on and on about the problem of trade reporting this year.) It’s a shame that so much time and energy has to be diverted to cleaning up messes left by reporters and editors, who should know better by now.

The bottom line is that neither imports nor trade deficits cause U.S. job loss or slower economic growth.  If anything, the charts below (all compiled from BEA and BLS data) support the conclusion that imports and the trade deficit rise when the economy is growing and creating jobs, and they both fall when the economy is contracting and shedding jobs.