Predictions: Did it Happen?

Jump back three years ago, October 8, 2008, on the eve of Barack Obama’s election to president. An article in the American Spectator by Peter Ferrara reviewed a newly released book by Steve Moore, Art Laffer and Peter Tanous, titled The End of Prosperity.

Writes Ferrara,

The book explains in full detail the economic disaster that will befall America if it takes a sharp left turn to neo-socialism under the leadership of the far left President Barack Obama, the ultraleft Speaker of the House Nancy Pelosi, Senate Majority Leader Harry Reid with 60 liberal Democrat Senators, and their pal the ultraliberal Howard Dean heading the Democrat party.

He continues,

One of the insights of the book is that a major factor already tanking the stock market and leading foreign capital to flee America is the threat of the economic policies promised by Obama. Obama proposes increases in every major federal tax, on savers, investors, employers, small business, big business, and anyone who would start a business. Obama also promises to add additional federal spending of almost $1.5 trillion over the next four years ….That would be on top of all the spending increases already scheduled for our exploding entitlements and other programs. Obama also promises a massive increase in regulatory controls….These retrograde economic would ultimately produce a deep, long term decline in America’s standard of living, particularly for the middle class and working people. America would actually fall behind countries around the world.

Ferrara indicated that what happened under President Carter was a precursor to what was to happen under Obama:

The poverty rate actually started increasing in 1978 during the Carter years, eventually climbing by an astounding 33%, from 11.4% to 15.2%. A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. Average real family income for the lowest income 20% declined by 14.2%. Indeed, during the Carter years (1977 to 1980), real income declined for every quintile, from the lowest 20% to the highest 20%.

So, three years later, here in October 2011, were the predictions of Ferrara, Moore, Laffer, and Tanous correct?

If you were an Obama supporter, you would have laughed off their predictions as being absurd. But how wrong you would have been. Their predictions were excruciatingly on target. As discussed three posts below, the poverty rate is the highest it’s been since 1993. And average real family income has declined to levels not seen in 15 years.

Seems, though, that the authors were a bit off on their prediction that Obama would add additional federal spending of almost $1.5 trillion over the next four years. It turns out that Obama has added at least $3 trillion in additional federal spending in three years. (The amount by which our national debt has shot up during that time.)

Ferrara’s article was presciently titled: Prepare for the Worst.

The Obama-Pelosi-Reid episode is proof positive if you let big-government policies flourish, the consequences are tragic. We need new leadership. Fast.

Putting the brakes on rising living standards

GDP growth was revised upward for the first quarter of 2011, from 1.8 percent to a whopping 1.9 percent.

When looking at living standards, the GDP growth rate is practically meaningless if you don’t take population growth into account. And considering that the population growth rate of the U.S. is about 1 percent, that means per-capita GDP growth was a measly .9 percent.

This is scary stuff. The single biggest indicator of a country’s standard of living is the per-capita GDP average growth rate over the long term. There have been plenty of times when recessions put GDP growth way below average. But typically during the immediate-post-recession period, GDP growth skyrockets, making up for the negative growth during the recession. For example after the deep recession of the early 1980s, GDP growth shot up to 8 percent.

Yet now, post-recession (nominal) growth has been 2 to 3 percent. That’s way too slow to bring up our average economic growth rate to historical levels.

It can’t be emphasized enough how important long-term GDP growth is. It is what separates first-world countries from third-world countries. The difference between 2 percent and 3 percent GDP growth may not sound like much, but over the long term, it really adds up. Over 40 years, growing 1 percentage point higher means 50 percent higher per-capita income.

A seemingly small difference in GDP growth really manifests itself when comparing per-capita income of the United States vs. western Europe.  Some 30 years ago per-capita income was about the same. But since that time U.S. GDP growth has been slightly higher, as Europe’s massive welfare state has taken its toll. That has resulted in big differences in per-capita income; in 2010 it was $47, 200 in the U.S., whereas in Germany and France it was $36,000 and $34,000 respectively.

Regarding our slow post-recession growth, what’s going on? Obama’s economic policies, no doubt. They’re stifling economic growth, at at time when it should be flourishing. In a word, Obama is making our economy more like that of slow-growth, massive-welfare-state Europe.

The trillion-dollar “stimulus” has been a big stifler. It’s the same sort of policy that Japan tried during the 1990s in futile attempts to jump start its economic growth. But it only put itself deeper and deeper in debt, with the result that now its living standards are stagnant or falling. See this NYT article on what today’s Japan looks like, after spending itself into a hole, like Obama is now doing for the USA.

Such anemic growth post-recession is unprecedented in modern U.S. history as far as I know. And it’s because we have a president whose been successful in implementing a growth-inhibiting agenda, mainly such huge government spending. It just goes to show that government spending doesn’t spur growth. Keynesianism, as they call it, is unfortunately alive and well, but it only results in sickness.