5 Economic Terms Misused Often by Liberals

The Liberal Trifecta Photo Courtesy of liberalwhoppers.com

Danny Zeng | August 13, 2013

(A similar version of this article was first published on PolicyMic on August 12th, 2013)

The President’s recent economic speech in Knox College and the intense subsequent media interest have prompted me to explore the following often-misused economic statistics by Liberals:

1. Unemployment Rate. Whenever the official U.S. monthly unemployment rate ticks down, it becomes world news. I often receive my monthly BLS job report on Twitter: 7.4% for July. While the official rate had gone down slightly from June, and far from the 10% we saw a few years ago, this statistic is overrated and masks weaknesses in the labor market. The official government unemployment rate is an incomplete indicator of joblessness: It does not count those who have stopped looking for work, and it says nothing about net change in jobs as compared to expectation from economists — we came under expectation in July. About 4 million people gave up looking for work in July. Many jobs created were part-time, partly as result of businesses’ wariness regarding Obamacare compliance. In order to boost employment numbers and avoid political backlash, the White House recently suspended enforcement of the employer mandate in Obamacare for one year, a desperate attempt to spur job growth prior to the 2014 election, even if it means shooting themselves in the foot.

U6unemployed

The U6 unemployment rate, which is the broadest reported indicator that accounts for underemployment and those who are only “marginally attached to the workforce,” still stands at 14%. This statistic remained flat for the last 12 months. While the official unemployment rate has gone down marginally, we still have 11.5 million people without work. That should be our top focus as a country and we should not pat ourselves on the back every month when the number fluctuates slightly in either direction.

2. Median Household Income. The president said in the same speech at Knox College, “The average American earns less than what he or she did in 1999.” I scratched my head and thought maybe the president was referring to census numbers that show a reduction in median household income. If so, his statement accounts solely for income and fails to assess wealth gained during the period. The census definition of income excludes taxes and non-cash benefits. This method would peg a rich, retired couple with much wealth in financial securities as poor, as their income will be dramatically less as result of retirement. Using a more extreme example, assume the U.S. government takes all of our income and redistributes it back to us through transfers. Our median household income would be zero, despite the fact that we’ll have government transfers to sustain household consumption. Therefore, the measure does not capture financial well-being and consumption very well. Average (mean or median) American households have actually gained in after-tax income, according to the CBO graph. According to economists Bruce Meyer and James Sullivan, median income and consumption both rose by more than 50% in real terms between 1980 and 2009.

CBO Average Household Income

The President continues: “this growing inequality not just of result, inequality of opportunity — this growing inequality is not just morally wrong, it’s bad economics. Because when middle-class families have less to spend, guess what, businesses have fewer consumers.” Scott Winship of Brookings discussed the effect of inequality, growth, and opportunity back in April, saying there is scant evidence that supports the proposition that inequality hampers growth. The President here also unveils the premise of his economic worldview. He seems to believe that consumption creates demand that then creates supply. According to this logic, the economic remedy would simply constitute putting more dollars into the pockets of middle-class families. Where are these dollars coming from? Businesses themselves? Or Government? The President seems to suggest that more middle-class spending power could come from the rich (mathematically it wouldn’t make sense for it to come from the poor). If only would the rich share their slice of the pie (redistribution), then businesses will thrive. He is not talking about opportunity here; the President is talking about redistribution. How does spending more money solve the “inequality of opportunity” if not for us to have the same “opportunity” to spend more? And “spend more” necessarily implies more dollars, whose origins I’ve discussed above must come from the rich. Thus, this is a loopy argument that mistaken income for consumption, which in turn distorts economic policy. Unless, of course, one buys into the argument that redistribution constitutes wealth-creation…

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Let the Sequester Go Through

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Courtesy of Cartoonist Henry Payne at henrypayne.com

By Danny Zeng | February 28th, 2013

Only in Washington, New York Times, and academia will you hear the term “austerity” used to demagogue the current round of automatic spending cuts scheduled for this Friday, March 1st, which by the way, is the doing of the very congressional men and women who manufactured this crisis in the first place.  The media and the President have been staging daily segments to draw attention to the “crippling” effect of the so-called sequester (again wonkish jargon for “cuts”).

Now, is this bad policy? Absolutely. This was the unthinkable mechanism that Congress came up with to force deficit reduction back in 2011. What’s happening is the same people in Congress decided to play with fire then, burnt their fingers in the process, and now they are screaming for ice – or more like for Aloe Vera from the rich, depending on your view.

Average Americans who are mentally drained from the last congressional debacle over the fiscal cliff don’t seem to care as much this time, and I don’t blame them. Why should they invest time after time in the legislative dysfunction that is often self-induced? The President in recent days has pulled a classic play from his book by going on the air promoting a “balanced” approach of raising taxes on the rich while reducing spending cuts. This is a dishonest way to deal with this issue on several grounds.

  1. First of all, by now, when the President utters the word “balanced,” I perch my ears up to listen for specifics. The President is dubiously trying to sell his revenue hike as a “comprehensive tax reform” by closing tax loopholes on the wealthy– sure, but “comprehensive” would also mean lowering marginal rates for everyone to stimulate growth, which is not part of the President’s plan. His plan really comes down to more taxes on the rich on top of the already imposed taxes on the well-do from the fiscal cliff deal in January. Balanced much? Or class warfare?
  2. The actual sequester amounts to about 1-2.4% of the $3+ trillion federal budget, depending on if we use the Congressional Budget Office estimate of $44 billion effective cuts this year versus the often cited $85 billion. To put this into perspective, annual cost of attendance at UT Austin amounts to about $26,000.The “sequester” that would apply to an average student would amount to $260-600 annually; divide this number by 12 into monthly units, the cuts amount to $21.67-50. This would mean more spaghetti instead of salmon for dinners (which obviously threatens our nutritional outlook), loose-leaf versus hardcover textbooks (which obviously threatens our educational needs), jogging in the park for free instead of having a gym membership (which obviously undermines our health), or perhaps just working a few hours less (which obviously threatens job prospect). This is a crude analogy, but I think it is pertinent to the fact: the sequester, while it does have consequences, is a tiny, flexible component of our larger addiction to spending.
  3. The main drivers of our spending problem are still the Big Three – Medicare, Medicaid, Social Security, which together consume about 60% of our federal budget, and none of which will be touched under the President’s plan to replace sequestration. A truly “balanced” approach would put entitlement reforms on the table. The often-touted Simpson-Bowles definitely tackles entitlements in their effort to tackle our structural deficit.

For these reasons, Republicans are right to hold their feet to the ground against another one of the President’s tax-the-rich scheme. While the sequester could inflict some short-term pains, it will put us on a more sustainable long-term fiscal path toward growth and opportunities, along with genuine tax reform presumably later this year. The politics is difficult, but the choices are clear. Since our elected officials have so meticulously made the bed for this political theatrics, I suggest for them to just lay in it and ponder the concept of leadership. The fact is that the “super-committee” had failed, and Congress kicked the can further down the road in January. Now we are at the end of the road. Actions have consequences.  It’s about time that our country enters a fiscal awakening.

Romney: I’ll restore the vitality that gets America working again #debate2012

By Danny Zeng

Tonight, after not doing so well in the polls in recent weeks, Governor Romney resurged as the opposition leader who is in command of the issues challenging a very liberal president who has a drastically different vision for America. Everyone went into the debate knowing that the most important issue to America: job creation. Throughout the debate, Romney remained constant on-message in that HE is the only candidate who has a real plan to create jobs for this country.

Obama’s standard message on his failure to deal with the debt: I inherited…[The President: “When I walked into the Oval Office, I had more than a trillion-dollar deficit greeting me”] The then-candidate Obama promised that he’d cut the deficit by half, but deficit has been above a trillion throughout Obama’s tenure. The President lost control of the issues toward the beginning when he unsuccessfully tried to tag Romney to “trickled down economy.” If anything, the conventional wisdom that “it’s the economy, stupid” as a campaign mantra has salvaged tonight, as the President was hammered on his failed economic policies.

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