This past week, the revised numbers for the GDP for the 4th quarter of 2015 were released. The growth rate in GDP was 1.4%. That was revised upwards from the previous report that estimated a 1.0% growth rate. To listen to some in the mainstream media, this higher number was a major positive for the economy. Really? Have these people lost their mind?
The American economy is limping along right now. Overall production of goods and services is hardly growing; that 1.4% growth rate is tiny by historical standards. Perhaps even more important, aggregate corporate profits in the fourth quarter were down by 8.4% compared to the prior quarter. Profits are at the lowest level of the last five years.
The low level of corporate profits is a critical indicator of where the economy is heading. Companies will not invest if they cannot see a way to earn profits on that investment. Lower aggregate profits means that more and more companies will not see the profit in investments. That in turn means less investment. Less investment means fewer new jobs and less growth. When you start from 1.4%, less growth means a recession.
The amazing thing about this daunting prospect for our economy is how little is said about it in the current election campaign. Among Democrats, no one addresses the subject in any way but fantasy. Bernie Sanders wants to hike corporate and individual taxes by major amounts, something that will drastically reduce corporate investment and new jobs. The result would be a severe recession. Hillary Clinton wants to continue the Obama economic policies but to push them further. That too would raise costs and lower profits for the business sector. The inevitable result would be job losses and recession. Among Republicans, both Trump and Cruz have detailed plans which would help the private sector to grow. Shifts in taxation and switching some of the burden to imported goods instead of domestic goods would pump up manufacturing in the USA, would drive down costs for American businesses and would take away much of the unfair advantage that our current system gives to imports over our own production. But consider this: how much have you heard about the Trump plan or the Cruz plan? Did Trump call Cruz a liar? I bet you heard a lot about that. Did Cruz call out Trump for attacking his wife? I bet you heard a lot about that. Is Trump fighting with Megyn Kelly? No doubt you've heard of that too. But there is little mention of the plans by these two men to help grow the economy.
So why is there so little coverage of such an important subject? There's a number of answers. First, taxation of corporate profits is just not as exciting to most people as nasty personal charges. Similarly, if a few protesters show up at a rally and cause problems, it's much more telegenic than a discussion of economic growth. So the answer is ratings for the media. Second and equally important, many in the mainstream media understand that Hillary has no good answer to America's slow economic growth and impending recession. As a result, the media gives no coverage since that might hurt their favored candidate. Third, the candidates do not emphasize the economy enough. Even if the media does not cover this subject as much as others, the candidates could still force a breakthrough for the subject if they focused on it more.
America is facing the likelihood of a recession in the next year. How to deal with that problem is perhaps the most important issue in the election. We need to force the candidates to deal with this issue.
The American economy is limping along right now. Overall production of goods and services is hardly growing; that 1.4% growth rate is tiny by historical standards. Perhaps even more important, aggregate corporate profits in the fourth quarter were down by 8.4% compared to the prior quarter. Profits are at the lowest level of the last five years.
The low level of corporate profits is a critical indicator of where the economy is heading. Companies will not invest if they cannot see a way to earn profits on that investment. Lower aggregate profits means that more and more companies will not see the profit in investments. That in turn means less investment. Less investment means fewer new jobs and less growth. When you start from 1.4%, less growth means a recession.
The amazing thing about this daunting prospect for our economy is how little is said about it in the current election campaign. Among Democrats, no one addresses the subject in any way but fantasy. Bernie Sanders wants to hike corporate and individual taxes by major amounts, something that will drastically reduce corporate investment and new jobs. The result would be a severe recession. Hillary Clinton wants to continue the Obama economic policies but to push them further. That too would raise costs and lower profits for the business sector. The inevitable result would be job losses and recession. Among Republicans, both Trump and Cruz have detailed plans which would help the private sector to grow. Shifts in taxation and switching some of the burden to imported goods instead of domestic goods would pump up manufacturing in the USA, would drive down costs for American businesses and would take away much of the unfair advantage that our current system gives to imports over our own production. But consider this: how much have you heard about the Trump plan or the Cruz plan? Did Trump call Cruz a liar? I bet you heard a lot about that. Did Cruz call out Trump for attacking his wife? I bet you heard a lot about that. Is Trump fighting with Megyn Kelly? No doubt you've heard of that too. But there is little mention of the plans by these two men to help grow the economy.
So why is there so little coverage of such an important subject? There's a number of answers. First, taxation of corporate profits is just not as exciting to most people as nasty personal charges. Similarly, if a few protesters show up at a rally and cause problems, it's much more telegenic than a discussion of economic growth. So the answer is ratings for the media. Second and equally important, many in the mainstream media understand that Hillary has no good answer to America's slow economic growth and impending recession. As a result, the media gives no coverage since that might hurt their favored candidate. Third, the candidates do not emphasize the economy enough. Even if the media does not cover this subject as much as others, the candidates could still force a breakthrough for the subject if they focused on it more.
America is facing the likelihood of a recession in the next year. How to deal with that problem is perhaps the most important issue in the election. We need to force the candidates to deal with this issue.
No comments:
Post a Comment