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.

On the plus side, The Wall Street Journal this week also reports on declining mortgage rates that might fall to 4.5% this summer.  This is great for consumers that need a new mortgage or who might want to refinance their homes.  Interestingsly, this mortgage rate drop comes as a result of money from outside the U. S. that is seeking the safety of the U. S. economy.  So, money has been flowing into U. S. bonds.  While America has its own significant economic problems, we still look a whole lot safer than those European welfare state economies on the verge of potential or technical bankruptcy.

On the negative side, however, our current “quasi-recovery” has been marked by persistent and stubborn unemployment, at levels much higher than earlier in the decade.  Unemployment is still at 9.9% with the more inclusive U-6 metric at 17.1%.  U-6 includes unemployed worker, plus discouraged workers who have given up looking for a job, and also includes part-time workers who want full-time work but can’t find it.

In addition, there are other significant concerns that might be foreshadowing a double dip recession.  The knee-jerk reaction of Germany, banning naked short-selling on European government debt, derivatives, and other stocks, plus the reaction of Europe to the problems in Greece are not the kinds of pro-growth and pro-market policies that would likely lead to a better economic future for the European continent.  European countries seem to prefer their welfare state socialism and its discredited economic model of spend, tax and borrow, rather than putting themselves on a path to robust recovery.

The Wall Street Journal op-ed piece also points out three other factors that might help bring about a double dip recession.  These are a widespread deflationary trend among Western nations, a decline in American bank lending, and a decline in the velocity of money.

To illustrate the deflationary trend, consider the CPI (the core Consumer Price Index) in the U. S.  In April, it fell to its lowest level in 44 years!  In Ireland, their April CPI  fell 2.1% year-on-year.  In April, Spain saw their first core CPI deflation in the history of their CPI data series that dates back over 20 years.

While forecasting is always a difficult and tricky task, on balance it would seem to me that a double dip recession is a real possibility, that is, unless we see major changes in economic policies.  For now, anti-growth and anti-market policies seem to be in favor among government policy makers both in America and Europe.  Too bad for all of us!

Anthem Blue Cross of California has caused concerns to rise over planned rate increases of up to 39% for many of its customers that hold individual policies (those not covered under a group policy).  This move and similar moves by other insurance companies around the country have caused cries for more government regulations and in effect, for price controls.  Anthem Blue Cross responded by expressing sympathy, but stated that rising health care costs are the real problem.  After all, they have to pay the bills.  What should be done about these rate increases?  Should the Federal or state governments control insurance premium prices?

From an economic perspective, the answer is a resounding NO!  To fix the skyrocketing health care costs we are experiencing, we need more economic freedom and a truly free market in health care.

Why won’t price controls work?  For one thing, history shows they never work in the long run.  Price controls (that keep prices artificially low) encourage demand (more people want more things when they are cheap).  Plus, price controls discourage supplies (why should a company provide a product or service if they can’t make money).  Price controls can even force some companies out of business.  They can’t make a profit or worse yet, they lose money.  With increasing demand and decreasing supplies, price controls also lead directly to rationing.

Instead of price controls, America needs a free market in health care.  Doctors, hospitals, drug companies, and insurance companies need to be free to set prices, create new services and products, and innovate.  Innovation and pricing flexibility lead to lower prices and high quality health care.

In the Federalist Papers written by Alexander Hamilton, James Madison and John Jay, Federalist No. 62 states: ”A good government implies two things: first, fidelity to the object of government, which is the happiness of the people; secondly, a knowledge of the means by which that object can be best attained.”

Since the American people have CLEARLY indicated in many polls that they do not want the Federal government to take over the health care system, our Constitutional system is working just as the Founding Fathers intended.  The “happiness of the people” … good government … is being achieved.  So, Washington is not broken or dysfunctional.  It’s working just as it was designed to work.

Right now, 50% of the $2.4T America spends on health care is DIRECTLY controlled by government, while much of the rest is INDIRECTLY controlled by government.  If we want to truly FIX the problems with our health care system (the problems caused by government tax and regulatory policies), we need more economic freedom and a free market in health care.

You can read more about the Battle against a Free Market in the Health Care Industry in my recently released book: “America’s Economic War – Your Freedom, Money and Life: A Citizen’s Handbook for Understanding the War between American Capitalism and Socialism.”

More taxes vs more jobs?  If we want to increase jobs and spur on economic growth, it’s time to cut taxes.

The 15% Answer consists of the following policies:

1.  Tax all personal income above $50,000 at a flat fixed rate of 15%.  If someone earns less than $50,000, they pay no taxes at all.  Eliminate all social security and medicare taxes.

2.  Tax all businesses (large and small) on business value added at a flat fixed rate of 15%.  Eliminate the corporate income tax.

3.  Eliminate capital gains taxes, estate taxes, gift taxes and excise taxes all together.

The 15% Answer provides greater fairness and equity.  It will also probably result in higher revenues to the Federal government and in extraordinary economic growth and prosperity.  The GDP will likely soar.

The tax and spend formulas for so-called growth supported by the advocates of Keynesian economic policies simply do not work.  The evidence is overwhelming.

So, let’s stop spending America into economic bankruptcy.  Let’s adopt the 15% Answer and get America moving again.