As The Wall Street Journal reports, we have about 14.9 million people unemployed.  There are 8.9 million involuntary part-time workers.  Right now, the unemployment rate is 9.6%.  If we include other people such as discouraged workers and part-time workers who can’t find full-time jobs, it jumps to almost 17%.  

Just imagine, one in seven Americans can’t find a full-time job!!!  That’s terrible for those suffering without a job and it’s awful for the economy as a whole.

The big question this week is will another tax credit plus another $50 Billion stimulus package change all this.  The answer from studying economics is NO!!!

The Wall Street Journal recounts some of the data …

Stimulus Package #1 increased Federal spending and offered temporary tax breaks.  The cost was $168 Billion.  Did it work?  The answer is NO!!!

Stimulus Package #2 was a combination of spending on social programs and one-time tax rebates for an incredible cost of about $800 Billion.  Did it work?  The answer is NO!!!

Stimulus Programs #3, #4, #5, #6, etc. including Cash-for-Clunkers, Home Buyer’s Tax Credits, Mortgage Payment Relief, Unemployment Benefits Extensions (now up to an astounding 99 weeks), etc.  Did they work?  It’s true that in places, they had some positive effects, but typically they were very minor or temporary effects.  Overall, did they work?  The answer is NO!!!

Keynesian economics has proven itself not to work year after year, in case after case, in country after country.  Why do we keep trying the failed policies of Keynesian economics?

The real answer to boost our economy rapidly and to dramatically increase the number of new jobs comes from pro-growth economics.  We need to cut taxes on economic growth.  We need to cut personal income taxes.  We need to cut corporate income taxes.  Plus, we need to cut capital gains taxes.  All tax cuts should be on a permanent basis.  Everyone needs to feel secure about the future.  We need to create a pro-growth economy based on economic freedom, not command-and-control and capricious big government policies.

By the way, allowing the Bush tax cuts to expire next year will tend to increase unemployment further.  It’s a recipe for further economic hardship. 

Choosing the Good Life Blog by Gerard Francis Lameiro, Ph.D.

And, we are warned by business leaders about the high costs of creating new jobs as well as their fear, uncertainty, and doubt about the economy.  Many citizens are downright worried about high government spending and high borrowing as well as astronomical deficits and skyrocketing debt.   Taxes appear to be headed upward with the upcoming repeal of the Bush tax cuts.  New health care taxes and regulations come with high price tags.  Are we really experiencing an economic recovery?  If not, when will we recover?  Let’s talk about it now.

In my view, we are in a very modest recovery phase that is most likely a part of a double-dip recession.  I also believe that if we continue down the road with the current fiscal (spending and taxing) policies and the current monetary (money supply and interest rate) policies, the American economy will slip into the second recessionary dip.

These policies are zapping the private sector of the capital and regulatory climate needed to create new businesses and new jobs.  In addition, the new health care law is driving America toward a complete restructuring of about 17% of the American economy with the depressing effect on the economy of socialized medicine.  Moreover, there are added costs associated with the new financial regulatory law and worries about potential new carbon taxes and cap-and-trade taxes and regulations.   It’s a recipe for another major recession.

When will the American economy recover?  The answer is simple.  When we cut government spending, cut taxes on economic growth (income, savings, and investment), and cut government borrowing, the economy will take off again – just as it has done in the past.

Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.

The first reason is very simple.  Taking money from the highly productive private sector of the economy means less capital formation (that is, less money from savers and investors that is pooled together to invest in new business).  Obviously, with less capital formation and diminished new economic activity, economic growth drops and tax revenues decline as well.

A second reason is more subtle and many within government seem to ignore it.  People don’t want to pay higher taxes and they will take action to cut their tax bill.  For example, a family might move from a State with an income tax that’s going up to a different State that has zero income taxes.  Or, if the tax rates are high enough, one member in a two-income household might quit work and just stay home.  This is especially true in higher income households that might feel the burden of higher and higher marginal tax rates.

Ironically, the very people who call for cutting deficits with higher taxes, don’t seem to realize that those higher marginal taxes will not only raise unemployment and cut economic growth, they will actually tend to raise deficits as well.

Back to Arthur Laffer’s article for an example.  Between 1968 and 1981, under Presidents Johnson, Nixon, Ford and Carter, tax rates went up.  What happened to tax revenues from the top 1% of taxpayers?  It dropped from 1.9% of GDP to 1.5% of GDP.  So, higher tax rates led to lower tax revenues as a percentage of GDP.

If we want to boost tax revenues, we better start cutting taxes.  Plus, if we want to try to avoid a double-dip recession in 2011, then we ought to cut taxes on economic growth now – by cutting taxes on income, savings, and investment.

Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.

The unemployment statistics are not good.  After 18 months and $862 Billion stimulus, unemployment is at 9.5%, there’s a 5-to-1 ratio of job seekers-to-job openings, 6.7 million Americans have been out of work for at least six months, 2.5 million American workers will run out of unemployment benefits, and about 2 million jobs have been lost.

What can we learn from economics?  Without question, economists know that if you subsidize something, you get more of it.  Of course, many of us have heard anecdotal evidence as well of unemployed people who only seriously look for work right before their benefits expire.  More rigourous economic studies confirm that when unemployment benefits are extended, actual average unemployment duration increases.

What can be done?  No one wants to see the truly needy and unemployed suffer.  But, adding another $30B of deficit spending on top of $1.4 Trillion of deficit spending isn’t a great recipe for economic success.

The answer to the problem is not more unemployment benefits and it’s not more deficit spending.  It’s to create a lot more jobs in the private sector.  How do we accomplish this task?

The answer is a change in fiscal policies.  America needs to lower taxes on economic growth.  We need to cut taxes on income, savings, and investment.  We also need to cut big government deficit spending.  We can’t tax and spend ourselves into prosperity.

America needs pro-growth fiscal policies that have a proven track record of creating new jobs.  They worked in the past.  They will work again.  Will Washington wake up in time – before we get into a double-dip recession or worse, a depression?

Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.

Investor’s Business Daily reported this week that economic optimism is down to a 17 month low, according to the IBD/TIPP Economic Optimism Index.  Separately, small business confidence is also declining with a lower sales outlook, according to the National Federation of Independent Business.  Why has economic optimism declined?  Are these results unexpected?  Let’s talk about this now.

The primary reason for the decline in economic optimism is the lack of jobs for those who are seeking work.  According to the IBD article, Raghaven Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, believes the official unemployment rate of 9.5% “grossly underestimates” the jobs problem.  He thinks the true jobless rate might be as high as 22-25%.

These results are not unexpected if you follow the economy closely.  I think a double-dip recession continues to be a very real prospect, unless we change fiscal tax and spending policies.  2011 might see the next dip with the repeal of the Bush tax cuts.

Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.

Yikes, a major depression.  Actually, I have been thinking the same thing for quite some time.  I think there exists a real chance we are in the beginning stage of another major depression, in many ways like the Great Depression and in some ways quite different.  Obviously, we are not close to a depression yet.  But, I think Krugman might still be right.  However, Krugman’s remedy of spending more is the WRONG answer.

Our economic recovery is currently very anemic.  But, I strongly believe the economy will be hit even harder in 2011 with an assortment of tax hikes and totally new taxes.  MORE taxes simply mean LESS money in the private sector to invest in new businesses, new products and services, and new jobs.  These new taxes and higher taxes will take their toll on unemployment numbers.

The current government policy we seem to be following is to increase taxes, increase spending, increase borrowing, and increase deficits.  There have been some notable exceptions.  But, in general, the government has a tax-and-spend mindset.  This is the precise opposite of a pro-economic growth policy which we desperately need now.

It is widely agreed that the various previous stimulus packages have failed to boost our economy.  Krugman’s policy answer will likely fail as well.  If our own economic history and data are not enough, just look at Japan’s record of attempting to stimulate their economy.  Keynesian economics didn’t work in Japan either.

Yes, we might be entering a depression.  If we do find ourselves in a depression, we can blame government policies.  But, the cause will not be too little stimulus spending.  It will be the lack of a pro-economic growth policy that emphasizes tax cuts for everyone.  Recall the Harding-Coolidge, post World War II, JFK, Ronald Reagan and Bush tax cuts.  In each case, unemployment was low and the economy soared.

Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.  For more information, please visit: http://GerardLameiro.com .

As first thought, it might seem to make sense that we need to increase taxes to cover Washington’s lavish spending spree.  Remember all those costly stimulus bills that failed to bring down unemployment substantially?  Unemployment is still around 9.9%.  It’s actually 17.1% if you count all those people who have given up looking, or all those people who have settled for part-time work because they couldn’t find full-time work.  Washington has spent lots of money following the discredited Keynesian policies of the past.

However, we now know that raising tax rates doesn’t necessarily raise tax revenues proportionately.  Why?  People look for tax loopholes, or they change behaviors, or they move to less taxing jurisdictions, or sometimes they simply cut back on working to avoid giving a larger share of their hard-earned income to the government.  It’s human nature to want to keep your own money.

According to a new article in The Wall Street Journal this week, there is a practical limit to tax revenues.  It’s about 18 to 19% of GDP.  From 1929 – 2009, tax revenues have never exceeded 19% of GDP.  What does that mean?

Even though tax rates are going up, tax revenues will hit a ceiling.  We can then expect our debts and deficits will continue to increase.  This means we can expect more and more unemployment, and less and less economic growth.

Increasing taxes, especially at this time, is simply the wrong fiscal policy to follow.

How do we get our deficits and debt under control?  The answer is also simple.  The government at all levels must CUT SPENDING and CUT TAX RATES.

By the way, cutting tax rates means more money for private sector investment in new businesses and new jobs.  It also means economic growth and increasing GDP.  That’s why government does better too!  When GDP goes up, 19% of GDP results in increased tax revenues for the government.

Last week, Greeks were rioting and the NY stock exchange was crashing.  It’s certainly been a real roller-coaster on Wall Street and not for the faint of heart.  When the European Union decided to create a joint European Union and International Monetary Fund (IMF) bailout plan of 750 Billion Euro (equal to nearly $1 Trillion U.S. dollars), the bond markets in Europe calmed down and the Dow Jones rebounded.  What’s going on?

It’s actually quite straight forward if you study economics.  Europe in general, and certainly Greece in particular, practice welfare state socialism.  Public employees in Greece (40% of the entire workforce) are given generous salaries, lavish benefits and have been able to retire at age 53 with considerable pensions too.  That’s great, except for the fact that someone needs to pay for all these expenses.  We live in a world of scarce resources.  That’s where economics comes in.

It’s easy for politicians under welfare state socialism to PROMISE ever-increasing benefits to the poor and middle class, heaping new, more expensive benefits upon older, generous benefits.  Recall, for example, the recent call in Europe for government-paid vacations … that’s not paid time-off, but actually payment for the vacations themselves.  PROMISES are cheap.  But, WHO PAYS THE BILL.

From economics, we know that wealth is created in the private sector.  Governments only tax and spend.  Governments DON’T create wealth.  Plus, when governments tax money and take it away from the private sector, there is less money available for investment in new wealth creation.  Wealth creation and economic growth require investment in new businesses that in turn, create new products and services and, of course, in the process, create new jobs.

Why were there riots in Greece?  People used to lavish pay, benefits, perks and pensions, don’t like the idea of giving them up.  They are frustrated with their government’s inability to keep their promises.

Why the $1 Trillion bailout plan?  Simply, to forestall the potential economic bankruptcy of governments that refuse to stop spending lavishly and that refuse to stop stifling economic growth with high taxes and burdensome regulations.  But, the problem with the bailout plan as The Wall Street Journal points out is that there is a day of reckoning.  If governments continue to spend wildly and tax the private sector to the point of limiting economic growth, the $1 Trillion bailout or any bailout will only work for so long.  As I say in my book, America’s Economic War, socialism always leads to economic bankruptcy.

What might the day of reckoning look like?  Rioting in the streets, political instability, draconian austerity measures, monetizing debt, hyperinflation, and considerable citizen suffering (on a level similar to the Great Depression).

Should Americans care?  Yes!  America is on the fast-track to socialism with high (and increasing) spending, high (and increasing) taxes, and high (and increasing) borrowing.  America is not that far behind Greece in many ways.  America needs to cut government spending, taxes, and borrowing.

The live interview took place last Tuesday and went about 15 minutes from roughly 1:45 pm – 2:00 pm EDT.  The topic was jobs and I went into detail on how taxes impacted job creation and economic growth.  Host and reporter Rick Leventhal conducted the interview.  The program was called “On the Job Hunt” and it appeared on Fox’s The Strategy Room on the Internet.  According to Fox News, “The Strategy Room is the web’s most talked about live show.”

My interview was done live from Fox News Channel’s Denver News Bureau and home of Fox 31 KDVR, a Fox O&O (owned and operated) station.  It is a beautiful facility.  Plus, the Fox News Channel staff treated me very well … from the moment security cleared me into the building, until I left about an hour later.

Once in the building, I was ushered into a great studio with glass walls overlooking the Denver skyline.  They had a tall, director-type chair for me with the skyline as a backdrop.  Of course, the technology was impressive and the make-up room was extensive.  Incidentally, I got to see the big studio for KDVR’s nightly news.  It was surprising in its size and layout with many office cubes, opening onto the set, out of camera range.

Once I sat in the director’s chair with the Denver skyline behind me … and had my earpiece in my left ear and my mike attached to my tie, I was ready to roll.  I simply had a fantastic time.  I was relaxed and enjoyed my on-air time.  15 minutes with no commercial breaks.  That’s a plus with an Internet show over broadcast and cable TV, more talk time.  I loved doing the show and I felt very comfortable and at ease.  As much as I enjoy talking to Talk Radio hosts, I thought TV might eventually be my true home in the media.

I’m hoping there will be another opportunity to be interviewed on Fox News Channel.  I’m also hoping it will be on Fox News or Fox Business.  Either way, I expect it will a great time.

For any Fox News Channel staff who happen to read this blog post, I think you’re great people!  Thank you for the great job you do and for treating me so very well.

For those of you who want to listen to my interview, Fox News posted a video clip of part of the interview on their website.  Here’s the link: http://live.foxnews.com/strategy-room/on-the-job-hunt#/v/4170237/what-didnt-they-teach-in-college/?playlist_id=89599 .  Hope you enjoy listening.

A VAT tax is a type of excise tax that works much like a National Sales Tax.  However, it’s actually worse than a sales tax.  A VAT tax charges a tax  on a product at each stage of production, up to and including, the final sale to the consumer.  Some products such as food and medicine might be made exempt from a VAT tax.  VAT tax rates might be set by the government between 15%- 20%.  (The average VAT tax in European countries today is about 20%, with the European Union mandating a minimum VAT tax of 15%.)

The Wall Street Journal this week provides a great discussion on the VAT tax.  It also gives the likely impacts of a VAT tax on the economy.  VAT taxes go back to the 1960’s in Europe.  From then until now, with VAT, the average European country spending has gone from 30% of GDP to 50% of GDP.  In effect, the VAT tax has helped Europe fund European welfare state socialism.

At the same time, job creation and economic growth has been held back substantially.  Consider the years 1982 – 2007.  During this time, roughly from the Reagan tax cuts to the Bush tax cuts, America created 45 million new jobs.  Europe with their VAT taxes and high government spending lanquished behind, creating only 10 million jobs.

The VAT tax would be a job-killing new tax that will stifle America’s economic growth.  It will likely result in higher unemployment numbers.  Remember one of my favorite examples from economic history.  The JFK tax cuts in the 1960’s resulted in the LOWEST unemployment rate in 30 years.

A VAT tax is a bad idea from an economic viewpoint.