The media has been touting the narrative lately that the economy has been improving and that we are finally on the road to recovery. They specifically cite 3 different statistics to “prove” their point. Those statistics are that unemployment has been slowly coming down, that our rate of debt increase has declined significantly, and that tax revenues have been going up. On the surface they aren’t lying about any of these statistics. However, there are a few things you need to understand about the underpinnings of each of these numbers in order to see what is really going on.
The first statistic is the easiest to explain away. We already know that they cite the less-than-useless U3 unemployment statistic when quoting unemployment figures instead of either the more accurate U6 number, or better yet, the more realistic Workforce Participation Rate. They do this because if they actually did use either of those statistics it’s pretty easy to see that the employment picture hasn’t been improving at all. Last month they cited that the
The second and third statistics are somewhat tied together and create a pure ruse. The reason the rate of debt increase has been slowing has nothing to do with our government curtailing spending. In fact, even with the sequester our spending habits continue to increase. In reality, what’s happening is that rather than borrowing money (which creates debt) we are instead printing money out of thin air at a rate of about $45 Billion/month under the friendly sounding name Quantitative Easing (which creates inflation instead). The reason that tax revenues have been going up has nothing to do with an increasingly productive economy. It has to do with all the stockholders that cashed out their dividends at the cheaper 35% tax rate rather than waiting and thus paying the new 39% rate. What you will see in the near future is revenues suddenly declining and at the same times we’ve already seen how the markets reacted last week when Bernanke simply hinted at halting further QE.
There is a simple undeniable truth that we need to accept if we are to ever get out from under our current mess. Macro Economics 101 states that ultimately everything ties back to government spending, period. We can play all kinds of games with where the money comes from to hide our bad spending habits, but ultimately no matter what method we use there are ALWAYS consequences to excessive spending. If we tax more it curtails production which, in turn stagnates the economy. If we borrow more it places a debt burden on our posterity that must be repaid. If we print more it creates a hidden tax better known as inflation. Playing media word games with reality doesn’t make the pain go away. It only masks the root cause.
The bulk of our governmental spending is related to benevolence which is exactly what our Forefathers tries to dissuade us from ever doing. The reason is that they understood that no government can ever actually spend enough to fulfill all the possible benevolent requests of its citizens. Our government currently tries to feed its citizens, then educated them, then house them, clothes them, and even provide free transportation. Now we are seeking to provide yet further assistance with things like free cell phones, computers, and medical care. You may look at each of these things individually and think they sound like good compassionate ideas, and they are. Unfortunately, they just aren’t a good idea for any government to be involved in for the very economic reasons that I spelled out above. To paraphrase from Abraham Lincoln when it comes to government spending, providing for the poor man doesn’t make him richer, it only makes the rich man poorer.