The latest economic numbers show a precarious economy suffering the cumulative effects of years of bad economic policy.
GDP growth was 1.6 percent in the first quarter of the year, down from 3.4 percent in the fourth quarter of 2023 and 4.9 percent in the third quarter. That trend is especially concerning because the economic fundamentals that coincided with the decline are still in place.
We have record-high government spending and borrowing (indulged by both political parties), major quantitative tightening by the Federal Reserve, decreases in the size of the American-born workforce (who are being replaced by immigrants), record-high credit card debt, very high housing costs (up by 37 percent since the first quarter of 2020 through the end of last year), and a record amount of federal regulation.
Core inflation rose at a 3.8 percent annual rate in the first quarter and 2.9 percent in March, the Commerce Department reports. Fearful of renewed inflation, the Federal Reserve will not ease up on the money supply and will keep interest rates at their highest level in more than two decades, as Fed Chairman Jerome Powell announced on Wednesday, which should slow economic growth further.
Meanwhile, President Biden is doing his very best to destroy the economy via regulatory brutality. The American Action Forum reports that Biden “agencies published $875.3 billion in total costs” on the U.S. economy in just one week in mid-April, including tighter emission standards for cars, tougher efficiency requirements for light bulbs, and silica exposure limits clearly meant to end coal mining.
Biden’s one-week regulatory bacchanal amounted to “[j]ust $20 billion less than what President Obama did in two terms!” notes AAF President Douglas Holtz-Eakin. The contrast between Biden and Trump is ten times as dramatic as that: $1.37 trillion by Biden to $30.1 billion by Trump by April of year four of their respective administrations.
private inventories and net exports were down in the first quarter, as was consumer spending on goods. The big upward movement was in spending on consumer services. It is difficult to believe that this resulted from great improvements having made those services more precious to the consumer. On the contrary, it is resulting from unnecessary cost increases caused by government regulations and higher interest rates. Consumers have been increasing their credit card debt to cover the price hikes.
Inflation-adjusted per capita income has decreased and is far below the 2017 to January 2020 trendline. After-tax income is even worse, because of the tax increases imposed by Biden and congressional Democrats in 2021 and 2022.
The rapid decline in GDP growth since last summer reflects serious problems with the U.S. economy. These have been papered over by expansive federal borrowing, which has spurred consumer spending — and price and asset inflation. The borrowing, in turn, is a result of massive federal spending increases far above the January 2017 to January 2020 trendline. The nation is heading rapidly toward a debt crisis.
Biden now wants to double the capital gains tax, to 39.6 percent, and raise the payroll tax for Medicare to 5 percent from the current 3.8 percent, an increase of nearly one-third. Biden proposes also to raise the top income tax rate by 2.6 percentage points and place a minimum tax on billionaires. All of this will further suppress economic activity, and the billionaires will find ways to avoid the minimum tax, as always.
The markets had been hoping against hope that the Fed would declare inflation beaten and begin lowering interest rates to stimulate the economy. There is a strong case to be made that inflation is in fact already below the Fed’s 2 percent target. I agree with that assessment. The Fed does not, so there will be no monetary relief.
Inflation may look overly sticky, but the country’s real economic problem is the massive weight of government overspending and regulations on the economy. The American people cannot get anywhere near their potential production of goods and services when the federal government is doing so much to stop them and states and localities are piling up further encumbrances. That will not change before January 20 of next year, if then.
Until Congress and the president get serious about decreasing the burden of government on the nation’s productive people, America’s long-term economic prospects will continue to decline.
The upcoming November elections give the public a chance to comment on the situation with their votes. Unfortunately, we cannot expect much progress toward real reform when the choices are between More of the Same and Much More of the Same.
S. T. Karnick is a senior fellow and director of publications for The Heartland Institute, where he edits Heartland Daily News and writes the Life, Liberty, Property e-newsletter.
Image: Marcantonio Raimundi
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