Government Can't Do It
After Monday’s debate, one thing remains crystal clear: Secretary Clinton believes that government can create the benefits of economic growth without any actual economic growth. Burdened by politically motivated policies that are incapable of producing genuine economic growth, what else could she believe?
Working and middle class Americans are unquestionably suffering economically. Economic growth is and has been anemic since the recession ended. Gross Domestic Product, which measures the full value of the goods and services our economy produces, should be averaging an annual growth rate of 3% to 4%, particularly coming out of a deep recession. In fact, in 2010, the White House projected that GDP growth would “accelerate in 2011 to 3.8 percent” and “exceed 4 percent per year in 2012-2014.” But, GDP has averaged about 2% since the recession ended, producing the worst economic recovery since World War II.
So far this year, the situation is even worse, with GDP is averaging about 1%. The Federal Reserve Board is projecting GDP growth going forward at a mere 2% annually. In fact, the economy is so weak that the Fed is afraid to raise interest rates even one quarter of one percent (0.25%). Despite all the hyperbole about the supposed economic recovery, this reticence speaks volumes as to the actual state of the economy. Whoever wins this election will be left with President Obama’s legacy of anemic economic growth that has widened the gap between the upper class and the working class, squeezing the middle class into near oblivion.
So, to get GDP back on pace, we need to understand why economic growth has been so anemic. According to the US Commerce Department, one of the primary causes has been a decline in investment. Faced with the world’s highest corporate tax rate and looking to a future of 2% growth, businesses are understandably reluctant to invest.
Trump’s solution is to incentivize business investment by lowering the corporate tax rate and encouraging businesses to invest their foreign earnings in the US. As Trump stated in the debate, “I’ll be reducing taxes tremendously, from 35 percent to 15 percent for companies, small and big businesses.” He would also reduce the growth destroying regulatory burdens American businesses must bear, keep our energy dollars and jobs in the US by an “all of the above” energy policy, and negotiate more equitable trade deals to reduce our massive trade deficits. If the idea is to increase business investment, drive economic growth and create jobs, this is a “tremendously” effective approach.
Clinton, on the other hand, would raise taxes on “the wealthy” to “make the economy fairer”, further discouraging investment and condemning us to prolonged abysmal economic growth. She would also further enlarge the regulatory state and destroy energy industry jobs in the name of global warming. In her efforts to make the economy “fairer”, Clinton would sacrifice even the potential for economic growth.
Lacking that potential, Clinton turns to government mandates as the means to address stagnating wages, the decline in good paying jobs, the shrinking middle class, and growing income inequality. Her policy proposals include government mandates raising the federal minimum wage, forcing businesses to share more of their profits with employees, and increasing paid family leave and sick days. In other words, she would try to provide employees with the benefits of economic growth (increased wages and benefits) without any actual economic growth.
These proposals certainly have political appeal but there is a serious problem. When, as Clinton proposes, government attempts to create the benefits that come from economic growth without the underlying growth necessary to support the increased costs, businesses must act to reduce those costs. The simple solution is to reduce the number of their existing employees. Another solution is to reduce growth as increased labor costs decrease profit margins and discourage investment. In other words, fewer jobs. The minimum wage, if you don’t have a job, is zero (and there are no benefits).
Trump’s economic plan would produce employee benefits without government mandates as employers compete for employees in an expanding and job creating economy. I can guarantee that if employers are competing with each other for the best employees, they will pay more and provide more benefits to get them. Most importantly, there will be underlying economic growth to support increased wages and benefits, leading to more investment, more jobs and greater prosperity.
In a failed effort to be clever, Secretary Clinton called incentivizing business growth “Trump Trickledown Economics” and blamed this approach for the 2007 Recession. This is simply a false narrative. The recession began when the housing bubble burst. That bubble came about as a result of reduced lending standards due to government efforts to get poor people into the housing market, the Fed keeping interest rates artificially low for an extended period of time and Wall Street devising ways to take advantage of the situation. It had nothing to do with incentivizing business investment as a means to generate economic growth.
Clinton has acknowledged that she intends to “defend and build on” President Obama’s economic “legacy”. As clear a policy indictment as that is, in reality, she would make things much worse. Trump has a plan to generate real economic growth, create jobs, open paths to the middle class and reduce income inequality. Let’s hope the American people give him a chance to implement it.