Is America about to be Hit with Inflation?

By Gerard Francis Lameiro | Published: October 18, 2010

In a recent set of articles and editorials appearing in The Wall Street Journal, inflation, the devaluation of the dollar, and the state of the American economy – all are at the top of the news right now.  With high unemployment - nearly 15 million unemployed – and about one in seven Americans unable to find full-time jobs, the economy is on people’s minds.  Now, there’s new news that inflation – under control for the last few years – is about to take off.  Is this true?  Is America about to be hit with inflation?  Let’s talk about it now …

QE2 is Set to Sail

QE2 is the key term.  What is it?  In this case, it doesn’t refer to a ship.  QE2 stands for “quantitative easing.”  That’s a fancy term for a monetary policy of easy money.  How does QE2 work?  The Fed buys U. S. Treasury Bonds and other assets, increasing its balance sheet.  More importantly, at the same time the Fed spends more money, it increases the money supply.  From economics, we know when there are more dollars chasing after goods and services, prices for goods and services go up.  That’s inflation.

Indeed, a stable money supply (that grows at about the same rate as GDP grows) helps to create a healthy economy.

Dollar Devaluation

QE2 is not the only policy that will tend to cause inflation.  Washington is also talking recently about the need for China to revalue their currency against the dollar.  In plain talk, devaluing the dollar means increasing the prices of goods Americans buy from other countries.  Once again, that translates into inflation.

Dollar devaluation is a policy that tends to drive prices higher and inflation.

Producer Price Index Jumps 4%

While U. S. producer prices went up 0.4% (seasonally-adjusted) in September, you see a different picture if you look at the last 12 months.  For the past 12 months ended in September, it rose 4%.  That’s appears to presage inflation as well.

Is America about to be hit with inflation?  It seems likely, especially since the Fed appears to be choosing inflation as a policy option.

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

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Posted in America's Future, Choosing the Good Life, Economic Growth, Inflation, Interest Rates | Comments closed

Will Americans Choose Economic Growth and Prosperity – Or Economic Decline and Poverty?

By Gerard Francis Lameiro | Published: October 11, 2010

Today, America is at an extremely critical juncture in our history.  We are a prosperous nation on the brink of economic decline.  We are currently in the midst of an exceptionally weak recovery, following the worst recession since the Great Depression in the 1930’s.  America is following a set of high tax and reckless spending policies that are creating astoundingly-high deficits and unsustainably-high debt levels.  Unemployment is very high at 9.6% with the very real possibility it will increase to 11.5% in 2011.  The dollar appears to be weakening and might even be abandoned as the reserve currency of the global economy.  Gold, a potential safe haven  in times of fear is soaring to incredible heights, indicating the sour mood of many people.  It looks as if America might be teetering on the verge of a second Great Recession in 2011 or worse.  Is the economy really all that bad?  Can we do anything about the economy?  Let’s talk about it now …

Right now, America’s fiscal policies (tax and spending policies) as well as its monetary policies (interest rates and money supply policies) are hitting the American economy and the checking accounts of Americans.  We also see the potential for devaluing the dollar.  We are threatened simultaneously with the prospects of both upcoming inflation in many areas of the economy (such as food and energy) plus asset deflation in other areas such as wages, salaries, and housing.  It’s an economically stark picture.

Is America destined for economic decline?  Certainly not!

Economists have studied economic growth extensively and know what works and what doesn’t.  The issue is simple.  Will Americans choose economic growth and prosperity?  Or, will we choose economic decline and poverty?  

In my new book Choosing the Good Life: Two Competing Economic Visions, I shine a bright light on this issue, one of the greatest issues of the 21st century.  I discuss the two competing economic vision for the “Good Life,” a life characterized by economic growth, general prosperity, and peace among nations.  Most importantly, I outline a roadmap to achieve the Good Life.

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

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Posted in America's Future, Choosing the Good Life, Depression, Economic Growth, Economy, Great Recession, Inflation, Interest Rates, Jobs, Taxes, Unemployment | Comments closed

Are We Heading into Another Great Recession in 2011?

By Gerard Francis Lameiro | Published: October 4, 2010

Donald L. Luskin presents powerful evidence in The Wall Street Journal this week that the current stock market is tracking very closely to the stock market in the 1930’s.  Of particular concern are two critical economic policies that might help trigger another Great Recession in 2011.  Remember, the National Bureau of Economic Research announced a month ago that the recent recession was over.  But, two critical economic policies that might propel America into another Great Recession in 2011 are higher taxes and higher barriers to free trade (also known as protectionism).  Are we heading into another Great Recession in 2011?  What can we do to avoid another Great Recession?  Let’s talk about it now …

According to The Wall Street Journal article, if the Bush tax cuts are allowed to expire in January, the average after-tax income of working Americans will be cut 3.3%.  Using a direct calculation, a 3.3% after-tax income reduction means that GDP in 2011 would drop about 2.3%.  With such a drop in GDP, it’s not a stretch to conclude another recession would begin in 2011.  Added to that fact, our current recovery is very weak.  So, another recession on the heels of the previous Great Recession might be particularly hard on Americans.

If that’s not bad enough on the American economy, consider all the talk about protectionism.  Protectionism is the opposite of free trade and it generally leads to reduced economic growth.  Protectionism impedes economic growth by reducing trade among nations that enrich both consumers and producers of products and services.  For example, if America raises the costs of goods coming out of China with a new tariff, who gets hurt?  Americans pay more for the goods they do buy at higher prices, while China gets less income because they sell fewer products.  Protectionism is a lose-lose policy.  Free Trade, in sharp contrast, is a WIN-WIN policy.

Historically, many economists believe the Smoot-Hawley Tariff Act was the proximate cause of the Great Depression in the 1930’s.  Protectionism is a recipe for economic decline and stagnation.

Now, some people in Washington want to pass a new law that would permit the Department of Commerce to regulate trade among nations based on currency interventions by foreign countries.  For example, if the Department of Commerce does not believe a foreign currency intervention by a foreign country is “fair,” it can decide to increase the costs of that nation’s goods.  Putting bureaucrats (even very well-meaning bureaucrats) in charge of determining what’s fair (or not fair) is not how a free market operates.  It appears to be a backdoor tariff program that will most likely lead to reduced economic growth for America and other nations, as well as potential ill will with other nations.

Bottom line.  Are we heading into another Great Recession in 2011?  Yes, it appears that we might be heading for another Great Recession in 2011, if we maintain our current fiscal and monetary policies; if we allow the Bush tax cuts to expire and hurt economic growth; and if  we create new barriers to free trade that also cut economic growth and increase prices of goods to American consumers.

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

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Posted in America's Future, Choosing the Good Life, Double-Dip Recession, Economy, Free Trade, Great Recession, Taxes | Comments closed

Are Americans Feeling Max-ed Out on Taxes?

By Gerard Francis Lameiro | Published: September 27, 2010

According to a story in The Wall Street Journal this week, 29 states raised taxes a total of $24B in fiscal 2010.  These tax increases are in addition to various pending 2011 tax increases, such as the tax increases resulting if the Bush tax rate cuts are allowed to expire.  Taxes have already increased on personal income, sales, and businesses.  Candy taxes, soda taxes, restaurant takeout taxes – when will it end?  Are Americans feeling max-ed out on taxes?  Let’s talk about it now …

There’s no question about it.  Americans are feeling the burden of increasing taxes in an era of economic stagnation.  State and local governments are being forced to downsize their budgets and/or increase tax revenues by raising taxes or fees – sometimes both.  Why?  Because state and local government revenues are generally shrinking under the weight of our anemic economy.

The Wall Street Journal reports that California now has a top income tax rate of 10.55%.  Of course, those California taxpayers in this bracket also have to consider paying any Federal income taxes they might face as well.  The states of Colorado and Washington have increased their sales taxes to cover soda and candy.  Plus, Colorado has even decided to tax restaurant takeout orders.

The list of proposed tax increases, new taxes, and new fees seems limitless.  Then, there’s the expiration of the Bush tax rate cuts.  If allowed to happen, there will be an enormous tax increase on Americans.  No wonder some Americans might feel max-ed out on taxes.

But, the key point to remember is that higher taxes (pulling money out of the private sector) tend to curtail economic growth.  Taxes on income, savings, and investment are holding back the American economy from growing.  It’s clearly time to cut taxes on personal income, corporate income, savings, and investments (such as capital gains).  If we want to grow economically, we need to stop taxing economic growth.

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

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Posted in Economy, Taxes | Comments closed

Is This a Job-Less Recovery or a Job-Loss Recovery?

By Gerard Francis Lameiro | Published: September 22, 2010

Special Blog Posting

In a powerful editorial this week, Investor’s Business Daily talks about our current anemic recovery with high unemployment.  They point out that today’s unemployment rate of 9.6% is actually higher that when the recession ended in June 2009, a date that the National Bureau of Economic Research just announced this week.  Then, it was 9.5%.  So, in terms of unemployment, the recession might be over, but employment has not bounced back.  Some call this a “job-less recovery.”  But, is it really even worse than that?  Let’s talk about it now …

According to Investor’s Business Daily, since the recovery began in June 2009, the economy has actually lost 329,000 jobs.  That makes this a JOB-LOSS recovery.

In fact, the American economy requires a GDP growth rate of about 3% to create 1.5 million new jobs - the number of new jobs needed on a yearly basis to keep the unemployment rate from going up even more.

The bottom line.  We’re in a recovery, but a very weak one.  It’s a job-loss recovery.  It also appears increasingly likely that if fiscal and monetary policies do not change, we might be in for a tougher year in 2011.

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

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Is the Great Recession Over? Will the 2nd Great Recession Start in 2011?

By Gerard Francis Lameiro | Published: September 20, 2010

The Wall Street Journal reported this week that the National Bureau of Economic Research (NBER) has officially announced that the recession was over in June 2009 (more than a year ago).  This is the group that attempts to accurately determine when recessions begin and end.  According to The Wall Street Journal, NBER also stated that “the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.”  So, is the Great Recession really over?  If it is, why is unemployment so high and the economy so weak?  When will we really recover?  What can we expect in 2011?  Will there be a double-dip?  Or, will the Second Great Recession start in 2011?  Let’s talk more about it now …

If the National Bureau of Economic Research pegs the Great Recession over in June 2009, I think most economists would agree the recession is over.  That said, what can be said of the economy today.

Certainly, the recovery has been very weak.  Unemployment is still high at 9.6% with about 42% of the unemployed unable to get a job for 27 or more weeks.  This represents very high, long-term unemployment.  The U-6 metric of unemployment that includes additional categories of unemployed workers (such as discouraged workers and those who want full-time work but settle for part-time employment) is almost 17%.  Just think one in seven Americans can’t find a full-time job.  That’s abysmal.

Another important point to consider.  In one study by the Economic Science Institute at Chapman University, the researchers found that  a recovery in housing expenditures precedes a recovery in the overall economy.  According to the researchers in their Wall Street Journal article, residential construction recovery has led every other recovery in the American economy for the last 14 downturns since the Great Depression.  In fact, the average recovery in new residential construction in more recent years from an economic downturn has been over 25%.  In the last 12 months, it’s only been 6.3%.  This is an indicator that we can’t expect an overall recovery in the American economy anytime soon. 

If jobs and housing are any indication (and they clearly are), we are in a very weak recovery.

So, is the Great Recession over?  Yes, from an economics point of view, it is over.  But, from a practical point of view, there are almost 15  million Americans out of work and residential housing is weak.

Why is unemployment so high and the economy so weak?  This goes back to our government not following pro-growth fiscal and monetary policies.  If you want to learn more about fixing our economy, you can read my new book Choosing the Good Life.

What can we expect in 2011?  In my opinion, higher unemployment, increasing inflation, and declining GDP, unless fiscal and monetary policies change significantly.

Will there be a double-dip?  No, if GDP does decline enough, it will be the start of another recession.

Will the Second Great Recession start in 2011?  Unless we pursue pro-growth policies, I think there is a reasonable chance we will slide into another or Second Great Recession.

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

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Why Has It Been a Tumultuous Primary Season?

By Gerard Francis Lameiro | Published: September 14, 2010

The Wall Street Journal this week called this “a tumultuous primary season that has rocked establishment candidates.”  With incumbents often in trouble, establishment candidates facing tough challengers, and tea party activists heavily involved, tumultuous is a good word to describe what we have seen thus far.  Why has it been such a tumultutous primary season?  What’s going on?  What’s really fueling this unusual election year?  Let’s talk about it now …

The Wall Street Journal also published a related op-ed piece this week that might help to answer these questions.  The article by Arthur C. Brooks (President of the American Enterprise Institute) and Paul Ryan (Congressman from the State of Wisconsin) offer their explanation of the true decisions Americans are making this electoral season.  According to Brooks and Ryan, behind all the campaigns and candidates and rhetoric, is really a fundamental question.  Do Americans want the traditional American system of free enterprise, limited government, and low taxes?  Or, do Americans want to replace our system with a European-style social democracy (also known as welfare state socialism)?

The article goes on to cite a 2009 Ayers-McHenry poll of Americans that asked if they prefer larger government with more services and higher taxes OR if they prefer smaller government with fewer services and lower taxes.  The results were striking!  Americans overwhelming prefer smaller government, fewer services, and lower taxes – 69% to 21%!

No wonder then that Americans are upset this election season.  No wonder incumbents are facing tough challengers.

It’s obvious in the last few years, the Federal government has become larger and larger.  Why?  Because of big government spending, larger budget deficits, and unsustainable big government debt.  Consider just one example.  Over the objections of the American people, a very unpopular health care law was passed this year, creating a de facto government-controlled, system of rationed health care.

Why has it been a tumultuous primary season?  Simple.  Americans aren’t happy with the direction our nation is going.  Americans want limited government and freedom.  They want fewer services and lower taxes.  Americans do not want to go down the road to welfare state socialism.

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

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Posted in America's Economic War, America's Future, Big Government, Economic Freedom, Limited Government, Taxes | Comments closed

Will Another $50 Billion Stimulus Kick-Start Our Economy?

By Gerard Francis Lameiro | Published: September 6, 2010

Jobs.  Jobs.  Jobs.  It’s at the top of all the headlines this week.  It’s the number one story and it’s being debated coast-to-coast.  President Obama is proposing another $50 Billion stimulus package for roads, runways, and railways to boost our economy - in other words – to create jobs by building our transportation infrastructure.  The president is also proposing a $200 Billion tax credit for business in the form of a short-term research and experimentation tax credit that lasts through 2011.  That’s a temporary boost to business.  Will such a short-term business tax credit boost our economy?  Will another $50 Billion stimulus package kick-start our economy?  Let’s talk about it now …

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.

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Posted in America's Future, Double-Dip Recession, Economic Growth, Economy, Jobs, Taxes, Unemployment | Comments closed

My New Book is Available Now!

By Gerard Francis Lameiro | Published: September 6, 2010

Special Blog Post

My new book Choosing the Good Life: Two Competing Economic Visions is now available in both a print edition and a Kindle edition.  It’s a powerful and important, new book about the two economic visions fighting for your mind and your support today.  Read more about it now by visiting:  ChoosingTheGoodLife.com.

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

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Why Is Unemployment So High This Labor Day?

By Gerard Francis Lameiro | Published: August 30, 2010

Unemployment is in the news again.  In a detailed op-ed piece in The Wall Street Journal this week, Robert Barro shows why he believes unemployment would be significantly lower if unemployment benefits had not been extended from the standard 26 weeks to 99 weeks.  His calculations indicate that unemployment might be under 7% right now if only the unemployment benefits had not been extended to 99 weeks.  Is he right?  Why is unemployment so high this labor day?  Let’s talk about it now.

In economics, we know that when we tax something, we get less of it.  We also know that when we subsidize something, we get more of it.  It’s just common sense.  Taxing something like smoking cigarettes, discourages smoking cigarettes because the price goes up for smokers.  Similarly, if we subsidize something, we encourage it because we create an economic incentive for that activity.

Incidentally, that’s why we shouldn’t tax income, savings, and investment.  Taxing income, savings, and investment is essentially taxing economic growth.  We want more economic growth and prosperity, not less.

So, Mr. Barro is right that subsidizing unemployment benefits beyond some reasonable level does not make economic sense.  Of course, as a society, we need to be compassionate.  Some individuals and families need help desperately.  But, at some point, we encourage people to stay unemployed.  The fact that during one of the worst times in this recession, March 2009, there were 3.9 million people hired (while 4.7 million people left their jobs), meant the economy was adding workers.  Would more people have been hired if their unemployment benefits had been close to running out?  The answer is – probably yes.

Indeed, the fact that the share of long-term unemployment (people unemployed for more than 26 weeks) hit a whopping 46.2% in June of this year, eclipsing any other recession since World War II, is a strong indication that we are encouraging people not to seek employment.

While the duration for unemployment benefits might be partially the cause of high unemployment this Labor Day, there are other root causes such as high taxes that continue to grow higher.

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

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