ECONOMICS: Flat Earth Requirements
Wesbury, Brian S.
ECONOMICS BRIAN S . WESBU RY Flat Earth Requirements The better America's economic performance, the more calls we hear for government intervention. LMOST A DECADE AGO, I began to write and...
...The first two catalysts were the most important-the U.S...
...cut tax rates on incomes, innovation, and investment in the 1980s, while the Federal Reserve finally stopped its inflationary policy mistakes...
...According to the Feclerai Reserve, the U.S...
...Moreover, real household incomes typically decline for three or four years after a recession...
...One such proposal is "wage insurance...
...Unemployment has fallen from 10.8 percent in 1982 to its current level of 5 percent, and the net worth of U.S...
...Liberal thinkers, like former Clinton national economic adviser Gene Sperling, have attempted to exploit these opportunities, calling for higher taxes and even more government involvement in the economy...
...But layoffs are not a unique U.S...
...As a result, they understate true increases in compensation...
...In other words, a rising tide will not lift all boats...
...It is clear that the U.S...
...My thesis was simple...
...I could not agree more...
...I"~HOSE WHO ARGUE that economic opportunity is shrinking these days have a tough row to J[_ hoe...
...Today, more than half of all households (57 million) own equities...
...But neither of these statistics is convincing proof of declining living standards...
...Moreover, these earnings data do not include tips, bonuses, commissions, or benefits...
...A low tax, low inflation environment made the U.S...
...Not only are these people overstating the problem, they are also playing with fire...
...will export $1.3 trillion worth of goods and services, making it the world's largest exporter...
...has been in recession just 5.8 percent of the time and the stock market has grown by more than 1,000 percent...
...And what makes our liberals think they can do it any better...
...The fourth trend, globalization, was encouraged by the first three...
...O LD EUROPE HAS ALREADY TRIED t o find a "third way" and failed miserably...
...Infiation-adjusted consumer spending has increased at an annual rate of 3.5 percent in the past three years, hardly a sign of failing living standards...
...But it does not stop there...
...and its economic transformation has created a fertile field for those who do not like change...
...It is true that equity ownership is rising...
...Some want to stop globalization altogether...
...These "isolationists" assume that all our problems come from overseas and want either to impose restrictive wage legislation on countries that trade with us, or to impose tariffs...
...In addition, greedy business leaders have muddied the good name of capitalism, creating fertile political playing fields for skepticism and regulation...
...The whole point of having government step out of the way is to encourage more entrepreneurial activity, not less...
...Since then, the U.S...
...It is also clear that many Americans are facing economic pain at the same time opportunity has increased...
...Freemarket types have faith in people "doing" things, not government...
...But they are starting their climb from nearly the lowest rung on the ladder and their rapid growth in no way hurts the U.S...
...With supply comes demand and a wealthier world creates more opportunity for all...
...Today's economy, with its massive transformation of production techniques and distribution systems, requires something different...
...In my mind's eye, the "investor class" would hold politicians' feet to the fire and keep the U.S...
...The battle over extending the 15 percent tax rate on capital gains and dividends past their current 2008 phaseout may be lost, meaning those rates could revert to pre-tax cut levels in just three short years...
...To these people, no matter what happens, no matter how good the New Era becomes, more government is always necessary...
...They think creating a single-payer healthcare system will reduce costs to U.S...
...They occur all over the world as gains in productivity allow the replacement of workers with capital...
...In the past year almost 200,000 new jobs per month were created, the U.S...
...Instead, they have resulted in high taxes, double-digit unemployment, stagnant growth, and riots in the streets...
...The fifth trend was the most important one for sustaining the boom...
...Their argument goes like this: Globalization, technological advances, and outsourcing are increasing fears that only the highly skilled will getj obs, while middle class jobs will be lost and incomes will be reduced...
...households owned equities in 1983...
...Thirty-five hour workweeks, generous unemployment benefits, and protectionism were all intended to eliminate economic pain...
...is undergoing one of the most massive FEBRUARY 2006 THE AMERICAN SPECTATOR 39 ECONOMICS periods of transformation in its history...
...This comes close to being offensive...
...Providing unemployment benefits in a lump sum, so that workers can move or pay for education, is one change the current administration has proposed...
...produced more manufacturing output in November 2005 than in any month in its history...
...Liberals argue that the U.S...
...The U.S...
...a haven for entrepreneurship that allowed it to become the world's technological leader...
...They say this has been violated...
...This technology and its boost to productivity was the third trend...
...Instead, they propose a much more invasive set of government policies that put the burden on taxpayers...
...It is awfully hard to believe that globalization is having the devastating impact that liberal thinkers suggest...
...This proposal has received little support from liberal thinkers, bringing into question their sincerity...
...VI~~ HE JURY IS STILL OUT ON THIS LAST TREND...
...households has grown from $10.9 trillion to $51.1 trillion...
...Its impact is well understood, and many now refer to a "fiat earth" where the competitive landscape is leveled...
...Once the typical postrecession slump ended, incomes rose in the 1980s and 1990s, and they are highly likely to do so again this time...
...But the very success of the U.S...
...LMOST A DECADE AGO, I began to write and speak about what I called a "New Era of Wealth...
...Some of these "third wayers" want to reform our current welfare and unemployment system, which is a complicated morass of confusing programs...
...Some people have faith in government, others have faith in people...
...It is the Pouting Pundits of Pessimism who are making it seem as if the eeonomywere doing poorly, as I explained in a recent Wall Street Journal op-ed...
...to exit the stagfiationary 1970s and enter an era of tremendous growth and wealth creation...
...Between 1965 and 1982, the U.S...
...But this is just another attempt to take the risk out of life...
...This is not the road to happiness...
...Somehow they have found a way to suggest that rapid change and globalization requires more government involvement...
...In fact, we should want prosperity to spread around the world...
...Moreover, in 2005, the U.S...
...This comes close to being offensive...
...Despite having to climb out ofa recessionary slump, real average hourly earnings in November 2005 were 5.8 percent above their 1995-1999 average...
...In other words, U.S...
...According to the Federal Reserve, the U.S...
...Moreover, with its IO percent unemployment rate, Europe shows that nationalized healthcare does not lead to more jobs...
...With more American families owning "a piece of the rock," attempts to redistribute wealth would find less support from a shrinking minority...
...As evidence, they point to declining real household incomes and falling real average hourly earnings...
...This is the real dividing line...
...The invisible hand is always very active, but does not give speeches from the Capitol steps or issue white papers...
...has created 4.5 million new jobs since the tax cut in 2oos, and the unemployment rate has fallen to 5 percent...
...As a result, during the Clinton years, because tax rates went up, the decline in incomes was even greater on an after-tax basis...
...After all, their last attempt in the 1960s and '70s led the U.S...
...I suggested that five catalysts or trends caused the nearly miraculous reversal of fortunes that allowed the U.S...
...Which side do you want to be on...
...Nonetheless, the electorate is split 50/50, the federal government has been on a spending spree (includ38 THE AMERICAN SPECTATOR FEBRUARY 2006 BRIAN S~ WESBU RY ing the introduction of a new drug entitlement), and trade protectionism is on the rise...
...economy is faring very well in this time of massive change...
...regime that could lead to serious economic problems...
...They lack faith...
...To put this in perspective, the entire Chinese economy produces somewhere between $1.5 trillion and $1.9 trillion...
...The economy is growing faster than its long-term average, jobs are plentiful, small businesses are booming, profits and investment are expanding rapidly, more people own homes than ever before, and wealth is exploding...
...Their proposals would harm global economic growth and increase the risks of a Smoot-Hawley-type trade Gene Sperling wrote that anyone who holds this view is in the "don't worry, be happy camp...
...The history of the past 35 years should have put a nail in the coffin of socialist thought...
...Yes, it is true that China and India have massive populations and booming economies...
...40 THE AMERICAN SPECTATOR FEBRUARY 2006...
...once had a "social compact" that said "hard work, education, and honesty would lead to improved living standards and opportunity...
...While some argue this spending has been financed by borrowing, household balance sheets have never been stronger, with net assets of $62.5 trillion and total debt of just $11.4 trillion...
...Despite all of this great news, it is clear that many people are worried about the future and fearful of globalization and technology...
...Along with many other analysts, I surmised the existence of a growing "investor class" that would keep government policies focused on supporting entrepreneurship...
...phenomenon...
...With companies like GM and Ford announcing major layoffs, and some service sector jobs (programming, accounting, and radiology) being moved overseas, these fears are easily stoked...
...from legislating a European-style social welfare state...
...was in recession 38 percent of the time and the stock market had gone nowhere...
...The system was designed to help in an era of temporary layoffs and little change in the way the economy created wealth...
...They did so in the early 1980s (under Reagan), in the early 1990s (under Clinton), and, yes, they have fallen for four years in the early 2000s (under Bush...
...Others believe in a "third way...
...Government would subsidize the difference in pay for workers who faced such a problem...
...ECONOMICS BRIAN S . WESBU RY Flat Earth Requirements The better America's economic performance, the more calls we hear for government intervention...
...economy...
...exports equal at least 68 percent, and maybe as much as 87 percent, of the entire Chinese GDP each year...
...The question is what to do about it...
...In an apparent response to that argument, Gene Sperling wrote in the Washington Post that anyone who holds this view is in the "don't worry, be happy camp," and thinks nothing should be done...
...Brian S. Wesbury, The American Spectator's Economics editor, is a private sector economist working in Chicago, Illinois...
...In the end, it is the fear of the unknown that drives them...
...producers, eliminating the need to lay off workers...
...some will run aground...
...produced more manufacturing output in November 2005 than in any' month in its history...
...to stagfiation...
...The one difference is that tax rates were cut in the early 1980s and early 2000s, but theywere increased in the early 1990s...
...No worker would be allowed to see more than a 25 percent drop in income...
...Accord~_ ing to the Securities Industry Association, one-fifth of U.S...
Vol. 39 • February 2006 • No. 1
