Three Interesting Articles I Read Last Week by Gary D. Halbert

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

August 19, 2014

IN THIS ISSUE:

1.  Larry Kudlow – How to Make the Economy Better Fast

2.  John Aziz – Europe is Headed For an Epic Depression

3.  Doyle McManus – Obama Tests the Bounds of a Lame Duck  

Overview

I’m taking most of this week off to hang out with the kids before they head back to college this weekend. So today we’ll look at a few of the most interesting articles I’ve read over the last week. I hope you enjoy them. I have some comments of my own at the end of each article.

We will start with an article on Saturday from Larry Kudlow, a CNBC senior contributor and host of The Larry Kudlow Show on radio. Larry is one of my favorite economic and financial writers because he knows how to cut right to the chase and pulls no punches. In the following article, Larry offers his no-nonsense plan to get the economy back on track – and I fully agree with him.

Secular Stagnation Is a Cover-Up

by Larry Kudlow, August 16
RealClearPolitics.com

John F. Kennedy campaigned for president in 1960 by belittling Dwight Eisenhower’s three recessions and declaring, “We can do bettah.” He was right. In the 1960s, after the Kennedy tax cuts were implemented, prosperity returned, the economy grew by almost 4 percent annually, unemployment sank to record lows and a gold-linked dollar held down inflation.

But today many leading economists are throwing up their arms in frustration and assuring us that 2 percent growth is really the best we can do.

Barack Obama’s former chief economist Larry Summers began this chant of “secular stagnation.” It’s a pessimistic message, and it’s now being echoed by Federal Reserve vice chair, Stanley Fischer. He agrees with Summers that slow growth in “labor supply, capital investment, and productivity” is the new normal that’s “holding down growth.” Summers also believes that negative real interest rates aren’t negative enough. If Fisher and Fed chair Janet Yellen agree, central bank policy rates will never normalize in our lifetime.

Unfortunately, Americans seem to be buying into this dreary assessment. A new Wall Street Journal poll finds that three out of four Americans think the next generation will be worse off than this generation. So long, American Dream.

But secular stagnation is all wrong. It’s a cover up for mistaken economic policies that began in the Bush years and intensified during the Obama administration.

It would be hard to conceive of a worse set of policy prescriptions than the ones Larry Summers and his Keynesian collaborators have conjured up. We’ve had bailouts, massive spending-stimulus plans, tax increases on “the rich,” Obamacare, rudderless monetary policy that has collapsed the dollar, the Dodd-Frank bill, anti-carbon policies, a vast expansion of the welfare state, and on and on.

These measures have flat-lined the economy. It’s as simple as that. There has been no divine intervention, with God ordaining: Thou shalt only grow at 2 percent!

The blame falls on the White House and the Fed, and the discredited Keynesian model that government spending, debt, and cheap money are the way to restore growth. Ideas have consequences, and bad ideas have bad consequences.

We’re still waiting for the government-spending multipliers and the Fed’s escape-velocity rebound to kick in.

Amazingly, the architects of this colossal policy failure are the same people who promised they would rebuild the U.S. economy “for the long term,” as Barack Obama put it in 2009. But they’re now blaming the stagnant economy on structural problems beyond their control. Oh, we get it. Consumers and businesses are wrong because they didn’t adhere to Keynesian economic models.

We have paid people not to work by raising eligibility and time limits for various benefit plans, substantially raised marginal tax penalties when people move from welfare to work, disincentivized employers from hiring more workers (Obamacare, minimum wage), raised taxes on investment, passed new regulations to strangle our energy industry, unionized even when workers don’t want it, continued corporate-welfare cronyism and refused to fix a corporate tax system that sends jobs abroad. And then we wonder why the economy won’t shift into a higher gear.

And sadly enough, this is all happening when the potential for growth, productivity, and wealth are at an all-time high.

First, thanks to the underperformance of this recovery, we are $2 trillion and nearly 10 million workers below potential output and employment. We could recapture this almost immediately with the right policies.

Second, the digital age and technological revolution have made hyper-growth more, not less, achievable. Just consider how Uber has led to amazing price reductions and efficiency improvements in the taxi-cab industry. Or think of how smart phones, robotics, disease-killing advances in biotech, and new oil and gas drilling technologies are expanding our output and wealth. Because of this private-sector productivity revolution, we can produce far more in a day than our ancestors could in a month. And it’s only just starting.

We learned in the 1960s and 1980s how fast the economy can get back on its feet when policy mistakes are reversed. That’s the real case for optimism. Imagine for a moment that we abolished the corporate income-tax rate, slashing it from 35 percent to zero. The positive results would be near instant. In a matter of weeks, a tidal wave of capital and businesses would flow across our borders and deep into the United States. [Emphasis mine.]

The secular-stagnation argument is just an excuse for liberal policy failures. Keynesianism should now be recognized as snake oil. And Republicans should recognize they now have a big opening to convince America that “We can do bettah.” END QUOTE

America has the highest corporate income tax rate in the developed world. Not only do companies have to pay 35% of all profits made in the US, but also on any profits they make overseas. No wonder that US corporations are moving their headquarters out of the US and into more tax-friendly countries like Ireland – a process known as “tax inversion.” Eliminating or greatly reducing the US corporate tax would stop this trend virtually overnight.

I haven’t written much about Europe in a while. The EU economy overall was flat in the 2Q, and several major countries are in recession. As the next article points out in detail, there are fears that the EU may be headed in the direction of Japan and its decade-long deflation. If so, that is bad news for the US and the global economy.

Europe is in an Epic Depression — and it’s Getting Worse

Why is the European Central Bank ignoring its mandate?
by John Aziz | August 15, 2014
TheWeek.com

Economic growth in Europe came in at zeroin the second quarter of 2014. That’s better than being in recession. But it’s not the growth that Europe — with its huge unemployment rate of 12 percent, or roughly 19,130,000 people out of work — needs.

The euro zone (below in blue) has been in a depression since the financial crisis. That’s because in terms of gross domestic product, the euro zone has not risen back to its pre-financial-crisis levels. The U.S. (below in red), on the other hand, has gotten out of its slump and continues to grow at a decent clip:

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