VTI - The Debt Battle Is Irresponsible

2023-09-20 11:38:36 ET

Summary

• The government may face a shutdown in less than two weeks.
• The national debt is projected to exceed $50 trillion by the end of the decade.
• Government budget programs have caused the growth of labor productivity, the foundation of real wages, to substantially slow down.
• The spending plans of the Biden administration will not come close to achieving what they were built to accomplish.

The government may close up shop for a while in less than two weeks.

We should not be in this position.

And, the future of the government budget looks particularly bleak.

Alan Rappeport writes for the New York Times that the "U.S. National Debt Tops $33 Trillion for the First Time."

He also adds in his article that

"The debt is on track to top $50 trillion by the end of the decade, even after newly passed spending cuts are taken into account, as interest on the debt mounts and the cost of the nation's social safety net programs keep growing."

"Slowing the growth of the national debt continues to be daunting."

But, the Biden economics plans are also contributing in a major way to the debt and economic problem.

Stephen Miran, an adjunct fellow at the Manhattan Institute, who formerly served as a senior adviser at the U.S. Treasury, writes in the Wall Street Journal that " Bidenomics Is Unsustainable ."

The effort of the Biden administration is to try to expand industrial capacity. Consequently, these "massive fiscal programs" are aimed at improving the climate and the use of energy. They are also aimed at improving the lot of the labor force and strengthening the position of labor within the business community.

Mr. Miran is worried that within today's environment, these efforts will be self-defeating.

Steven Rattner is worried because, in the New York Times, he argues that "The United Auto Workers Is Overplaying Its Hand, Risking Our Economy and the Election."

The "increasingly militant U.A.W. is overplaying its hand with an overly lengthy and overly ambitious list of demands."

Mr. Rattner concludes with the caveat that:

"Unions have an important role to play in redressing imbalances between owners and workers, and the autoworkers are certainly deserving of a substantial pay raise."

"That said, we need to be careful about killing the goose that lays the golden egg."

What is not said in all these discussions is the fact that some economic conditions have changed in the labor market and people are having a hard time dealing with them.

Specifically, with the change in Federal government policies over the past twenty-five years or so, labor productivity growth has become very lethargic, and, since labor productivity growth serves as the foundation for the growth in "real" wages, the slowdown is not surprising.

I have been writing about this slowdown in the growth of labor productivity for quite a few years now, and it seems as if no one really wants to pick up on what the economic policies of our government… both when the Republicans control the government or when the Democrats control the government… have done to reduce the growth rate of labor productivity.

The change in government policy took place in the 2010s as Fed Chairman Ben Bernanke refocused the Fed's actions to stimulate consumer spending to get the country out of a recession, whereas, before the recession, Fed efforts were mainly directed at stimulating investment spending, which was more closely tied to the improving productivity that came as businesses introduced new and better capital to the world.

Mr. Bernanke, specifically, when building the policy world of the Federal Reserve around "quantitative easing" and "quantitative tightening" focused on creating a rising stock market that would result in an increase in consumer wealth which would then lead to stronger consumer spending.

And, Mr. Bernanke's policies, as I have written about many times, seem to have achieved exactly what they set out to achieve.

Furthermore, Mr. Bernanke received the Nobel Prize for economics in the meantime.

Before, the Federal Reserve had focused on stimulating business investment expenditures. This approach was closely tied to Keynesian ideas about how the economy functioned.

But, let's look at what has happened to the growth rate of labor productivity.

To do this we go to the Bureau of Labor Statistics which produces information on the growth rate of labor productivity .

In the period 2000 to 2007, the growth of labor productivity was 2.7 percent.,

Mr. Bernanke became the chairman of the Board of Governors of the Federal Reserve System in February 2006.

The Great Recession took place between December 2007 and June 2009.

The first round of quantitative easing began in February 2009.

The second round of quantitative easing began in October 2010.

And, the third round of quantitative easing began in October 2012.

The period of economic recovery following the Great Recession saw the annual compound real GDP growth of 2.2 percent.

Inflation in this same period came in at 2.3 percent.

The inflation rate was hailed. People complained that the growth rate, the lowest of any period of economic recovery since World War II, was not good enough.

But, let's look at the growth of labor productivity.

From 2007 to 2019, labor productivity grew by only 1.7 percent per year, substantially below the growth rate achieved in the period before the Great Recession.

Note, that in the 2020 to 2021 period, the growth rate jumped back up to 2.2 percent, but in the 2021 to 2022 period, the growth rate was actually a negative 1.7 percent.

There is the information that economists say should serve as the foundation for the growth in labor's real wage.

Times have changed, and it looks as if one of the losers in this period of change has been labor.

Labor productivity has been very dormant… and hence the growth of real wages should be tepid.

We need to take this fact under consideration when considering the efforts of the government, through "Bidenomics," to build up unions and the labor force, in general.

Things are not working the way they used to. Consequently, the current efforts to stimulate the economy in the ways now being tried by the federal government are irresponsible, and Americans will pay for it sooner or later.

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