Two-Percent Growth Is a Loser for the Angry Middle Class But where's the GOP solution?

Townhall.com ^ | February 27, 2016 | Larry Kudlow

[Kaslin]

The good news is that the economy is growing at 2 percent and that there's no recession in sight (barring a complete collapse of profits). The bad news is that the economy is growing at 2 percent. It's been doing so for nearly 15 years under Democratic and Republican administrations.

Coming off a deep recession, real GDP growth is averaging no better than 2 percent. After 25 quarters of so-called recovery under Obama, it has increased a total of only 14.3 percent.

Compare this to earlier periods. After the JFK tax cuts of the early 1960s, the economy grew in total by roughly 40 percent. After the Reagan tax cuts of the 1980s, the economy grew by a total of 34 percent.

And here's the killer: Real middle-class wages are still flat-lining. These folks get nothing out of 2 percent growth.

As I feared, subpar economic growth never really came up in the Republican debate in Houston. Rather than growth, we got more cat fights. It's time to get serious.

In a recent essay, John H. Cochrane, a senior fellow at the Hoover Institution, wrote that "sclerotic growth is the overriding economic issue of our time." He has numbers to back this up.

From 1950 to 2000, the U.S. economy grew at an average rate of 3.5 percent. That generated a massive gain in real GDP per person from $16,000 to over $50,000. A huge win for the middle class.

But as Cochrane noted, if the whole post-WWII period had grown at 2 percent, income per person would have increased from $16,000 to only $23,000 -- about half of what actually happened at 3.5 percent growth.

There is a big difference between 2 and 3.5 percent growth. It's not abstract or theoretical. Essentially, the middle class has not gotten a raise in 15 years. In fact, a new report from Sentier Research finds that median household income of $56,700 (adjusted for inflation) at the end of 2015 is almost exactly where it was at the end of 2000.

Not surprisingly, the middle class is cranky and angry. And they are voting for change. Significant change. As in throw-the-bums-out change. That includes presidents, members of Congress, big-company crony capitalists, and corporate welfarists.

The middle class is saying the system is rigged against them, and they want to change who's running the system.

Much of this gets to the root of the inequality debate. Democrats like Hillary Clinton and Bernie Sanders want to raise taxes on the rich, saying it will solve inequality. It won't. All that will do is significantly reduce incentives to work, save, and invest.

But I say inequality is not the problem. The problem is a lack of growth. Middle-class people who haven't seen a raise in all these years don't want to punish success, and they're not jealous of those who have done well. They just want their piece of the pie.

And while the pie itself has stopped growing, the individual slices have gotten smaller.

Can you blame their anger and desire for radical political change? Nope.

Coming out of the caucuses and primaries so far, the economy has been the number-one issue. There's a message there. And the GOP has to address the issue of growth versus inequality. So far they haven't done it.

With the GDP report for the fourth quarter ended in December, we know that the inflation-adjusted economy is growing at 1.9 percent over the last year. Business fixed investment -- the category that produces good-paying jobs -- is growing at 1.6 percent. Low gasoline prices have helped consumer spending rise by 2.6 percent, but even that's not a wildly optimistic number. The inflation rate, meanwhile, is a measly 1.1 percent.

All this tells me nothing has really changed. But we can change this fast.

Research has shown that middle-income wage earners would benefit most from a large reduction in corporate tax rates. The corporate tax is not a rich-man's tax. Corporations don't even pay it. They just pass the tax on in terms of lower wages and benefits, higher consumer prices, and less stockholder value.

So as I've written a million times: Slash the corporate tax rate to 15 percent for large C-corps and small S-corps, go to immediate tax deductions for new investment, and make it easy for firms to repatriate their overseas earnings.

This would be the single-most stimulative program for reigniting economic growth. Principally, it's a middle-class tax cut. If you combine that with regulatory rollbacks and a stable dollar, within less than a year the U.S. economy can break out of its doldrums.

To all the GOP candidates: Please send this message. To my Democratic friends: Why not revive the legacy of the JFK tax cuts? It would be a whole lot better than punishing success.

[Georgia Girl 2]

Yes I saw that and we got Glock. :-)

[kearnyirish2]

We got check-cashing places and laundromats for an increasingly transient population living in illegal, undeclared basement apartments...

[Georgia Girl 2]

Yeh tell me about it.

[JPJones]

“We need to fire 50% or more FedGov employees and cut spending by at least that much.”

Yup.

That’s exactly what needs to happen, but I’m not going to hold my breath.

And that alleged 2% growth we’re seeing, it corresponds almost exactly to the annual 2% growth in FedGov spending.

No real growth at all, but more FedGov taxes on the backs of working people

[TomasUSMC]

Nowadays, 3.5 percent is equal to ZERO GNPgrowth. They redid the calculations in 2013 and added 3 percent and last year added another .5 percent.

So we actually are in a recession.

[TomasUSMC]

Bigger homes for smaller families...its been a great money making scheme for the government for decades.

More property taxes more utilities paid, more taxes on that. More insurance cost thus more taxes from insurance companies. on and on

[Elsie]

But where's the GOP solution?

Only a person with no or little faith in GOD would even formulate a question like this!

This country has no economic problems that politics can 'fix'; but SPIRITUAL ones that only REPENTANCE will fix.

[Elsie]

Yup, taking jobs away from real Americans.

Dang!

We're shipping these jobs to Mexico now; so WHY do these folks STILL pour across our border?

[Elsie]

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~75% more...

[Elsie]

BINGO!

[Elsie]

Votes OF the FR Caucus

http://www.hotr.us/fr/caucush160227.html

[SkyPilot]

We're shipping these jobs to Mexico now; so WHY do these folks STILL pour across our border?

Free medical care in Emergency Rooms, Subsidized Phones for Low Income (ObamaPhones), EBT Food Stamps, Social Security, Social Security Disability, Social Security for Refugees, Social Security for Humanitarian Cases, Social Security for Asylum, Medicare, Medicaid, Section 8 Housing, Unemployment, TANF Welfare, Energy Assistance, EITC, Foster Care Title IV, Old Age Assistance, AFDC, General Assistance Cash, Assets for Independence, SCHiP State Supplemental Health Insurance Program, Consolidated Health Centers, Consolidated Community Health, Maternal and Child Health Assistance Fund, Healthy Start, School Lunch, Job Assistance, Job Training, Minority Job Assistance, Job Relocation, Woman Infants and Children's Program, Nutrition for the Elderly, Summer Program, Summer Jobs Program, Minority Summer Jobs, Hispanic Jobs Program, Commodity Supplemental Food Program, Special Milk Program, Needy Families, Farmer's Market Nutrition Program, Public Housing, Low Income Energy Assistance, Migrant Education, Title One Grants to Local Education Authorities, Education for Homeless Children and Youth, Even Start, Job Corps, Health Marriage and Responsible Fatherhood Grants, TANF Child Care, Empowerment Zones for Minority Communities, Urban Development Action Grants, and Family Planning (abortion).

[Theophilus]

We never stop speaking their language and playing their games.

[Elsie]

CaChing!

[Elsie]

And not ONE of these ‘laws’ were written by border invaders.