What Creates Higher Growth?

Popular Economics Weekly

Amidst all the talk of Republicans promise to cut regulations and taxes to boost growth, there is one problem. Where are the workers that would boost growth? We are already close to full employment, and in fact Red states like Utah have an unemployment rate of 3.1 percent, per Binyamin Applebaum’s New York Times visit to the state.

“After eight years of steady growth, the main economic concern in Utah and a growing number of other states is no longer a lack of jobs, but a lack of workers,” says Applebaum. “The unemployment rate here fell to 3.1 percent in March, among the lowest figures in the nation. Nearly a third of the 388 metropolitan areas tracked by the Bureau of Labor Statistics have an unemployment rate below 4 percent, well below the level that economists consider “full employment,” the normal churn of people quitting to find new jobs. The rate in some cities, like Ames, Iowa, and Boulder, Colo., is even lower, at 2 percent.”

And this is when the Trump administration wants to build a wall and cut immigration quotas in half. There aren’t enough working-age American citizens to pick up growth, in other words. A corporate tax cut may encourage corporations to spend more on business investment. In fact, business equipment, in a positive indication for second-quarter business investment, rose a very sharp 1.2 percent, which should boost productivity from its recent very low 1.2 percent, and is the other component of GDP growth.

And there’s a simple reason for the surge in business investment, as I said last week. Businesses need more automation, because they can’t find enough qualified workers to fill the 5.743 million, job openings reported in the Labor Department’s latest JOLTS report, which is far above total hirings of 5.260 million in April, a gap of 483,000.

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Then there is the Trump administration budget proposal, which wants to slash healthcare and food assistance programs for the poor as they cut $3.6 trillion in government spending over 10 years, according to the White House’s budget proposal for next year.

So instead of increasing revenues to pay for the Wall, tax cuts for the wealthiest, and more military spending, they are reducing revenues by cutting spending on the programs that pay for our social safety net. And studies have shown this will create an even larger hole in the federal budget.

It’s really elementary mathematics. Without the workers to produce them, and consumers with enough money to buy said products (e.g., those middle and lower income workers who lose their Medicare or Obamacare benefits), there can’t be higher growth. And the Fed has said if the federal government increases spending without the concomitant revenues to pay for that spending, they will continue to raise interest rates to avoid higher inflation.

This is the Faustian bargain that the current Congress is attempting to pass. Tax cuts for those making more than $200,000 per year ($250,00 for married couples) takes away much needed revenues that cover benefits for everyone else. For instance, repeal of the Affordable Care Act’s tax provisions would provide America’s wealthiest taxpayers with an immediate tax cut totaling $346 billion over 10 years.

That will not fly, as word gets out and more Town Halls are flooded with protestors over the proposed $800 billion in Medicaid spending alone, cuts which would hurt the poorer Republican red states. So, unless lawmakers come to their senses, this could cause Republicans to lose their congressional majorities in 2018.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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