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It’s All About Growth

November 10, 2012

Mitt Romney was especially candid about the realities of budgets and economics when he talked with the Des Moines Register and explained that his economic plan was basically to have 4% growth. In fact, that’s the economic plan of every president. If you get it, you are golden; if not, not.

If there were a guaranteed way to get 4% growth, every president, Republican and Democrat, would do it and that would be that. Of course, there’s no magic. Sometimes you lower taxes and growth appears. Sometimes you raise taxes and growth appears. Regulations may help you OR hurt you. It is not, by any stretch of the imagination, simple.

Here’s a handy guide for understanding growth numbers from the presidential point of view: 2 percent growth is a rainy day. At 4 percent, the sun comes out and everything you do sparkles and gleams. You might see 6 percent growth, but that’s a little too good, like drinking too much coffee.

If you are president for 8 years, you want your growth rates to add up to at least 24 and ideally to crack 30. That is, you want 3 or 4 percent growth every year. A president with 4 percent growth looks like I look when a student I’m tutoring studies hard and gets an A: the parents are overjoyed to have “elected” such a wonderful tutor and that’s fine by me whether I deserve the credit or not.

Speaking of credit, the numbers provided below are shifted by 1 year. For example, Clinton gets credit for 2001 since the 2001 budget was mostly based on his policies. Unfortunately for Clinton, the 2001 economy included the results of a stock market crash — so he takes a “hit” in the data even though he left office before the fallout settled. You can’t blame W for 2001 — he had barely gotten his seat warm in the oval office after all. So Clinton gets the 2001 growth goose egg. Life isn’t always fair.

Here’s how the quest for the holy sacrament of 4% growth went under each president.

Reagan: -1, 8, 6, 4, 3, 4, 4, 3 (total = 31, debt increases dramatically)

Bush: 1, 1, 4, 3 (debt continues to increase rapidly)

Clinton: 4, 3, 5, 4, 5, 5, 3, 0 (total = 29, budget balanced, debt reduced)

Bush: 2, 4, 3, 2, 2, 2, -3, 0 (total = 12, debt way up, Great Recession hits)

Obama: 2, 2, 2 (slow growth returns, debt passes 100% of GDP)

We’re obviously in a bad way. We need 4 percent growth, but the last 8 years (5 Bush and 3 Obama) have been 2, 2, 2, -3, 0, 2, 2, 2. Our 8 year total of growth rates is only 9 and we wanted it to be at least 24. To make up for this, we need, as Romney told us before the election, a number of years of 4% growth (ten would be nice, but I’d settle for seven).

How do you make growth happen? Republicans like to stimulate the economy by cutting taxes for everyone in the hopes that they will spend the money. Democrats like to stimulate the economy by both cutting taxes for the middle class and also spending money directly. Whether it’s Republican stimulus or Democratic stimulus, lots and lots of government borrowing is a sure thing. Unfortunately, the growth we want is anything but.

There is a consensus among Democrats and Republicans that tax rates for high incomes should never go back to the 70% rates that Reagan got rid of. There is also a consensus that balancing the budget (someday) is a good idea. As you know, Clinton balanced 4 budgets by keeping taxes and spending at about 20% of GDP. Of course, it didn’t hurt that he had 4% growth to work with.

The one thing everyone agrees on wholeheartedly is that if we can have 4% growth, everything will be fine at least until the next crisis.

At the moment, despite rather large islands of consensus, we are being treated to a post-election brouhaha (aka partisan bickering) about whether tax rates for high incomes should be 35% or 40% and whether capital gains rates should be 15% or 20%. Republicans and Democrats are playing chicken right next to the so-called “fiscal cliff” presumably because they have nothing better to do. The battle is largely symbolic and will have little real effect no matter what tax rates are finally agreed upon.

Sorry I don’t have any answers for you. All I can tell you is it looks bad. We’ve had 8 years of 2 percent growth and we can’t afford to borrow much more money. The next post will talk a bit more about the increase in the national debt between 1980 and the crisis and I’m afraid it won’t be any cheerier than this one.

Okay, there is one good thing to note. Interest rates are so low that even though we’re borrowing money hand over fist, interest payments on the national debt are actually rather small, almost inconsequential. But, in a way that’s bad. It just encourages us to borrow even more money.

If interest rates go up we are TOTALLY screwed. Just saying.

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From → Politics

2 Comments
  1. ” 4% growth. In fact, that’s the economic plan of every president.”

    Oh yeah? What makes you think this is O’s plan? Is part of the plan to shut down the coal industry? To further limit oil production in the USA? Every day I read of new layoffs. Is this part of the plan?

    And the evil rich? What about endless golf games, lavish trips to Spain, to Aspen, Martha’s Vineyard vacations, a $6000 embroidered designer jacket for the FLOTUS to wear when meeting the Queen? And Mitt isn’t the only one with Cayman Islands bank accounts.

    There was a recent surge in food stamp numbers, the statistic held back until AFTER Nov 6.Real unemployment is at 14%.

    It looks like the economic plan is to get as many people as possible on the dole, to be paid for by the evil rich.

    My incme doesn’t qualify me as “rich” but I pay taxes and I STRONGLY RESENT THAT MY TAX DOLLARS ARE USED TO SUPPORT THOSE ON THE DOLE.

    Number crunching yields numbers. I’m concerned with reality.

  2. I don’t see any way the fed is going to raise rates for a while. I don’t see a big cut coming eitehr. My guess is that the fed cuts 50 basis points late this year. That drives down short term. My guess is long term rates stay flat.

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