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The End Of Growth In The United States

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With one month to go in the data series, US Total Non-Farm Payrolls have averaged 131.08 million in 2011. The problem is that the US is a Very Large System, and needs growth to support its array of future obligations, primarily Social Security and the debt it incurs to run its military budget, and other entitlements. If you had told someone ten years ago that Total Non-Farm Payrolls would be at similar levels in 2011, that likely would have sounded impossible, or extreme. But the fact is, US Total Non-Farm Payrolls averaged 131.83 million ten years ago, in 2001. The implications for this lack of growth are quite dire. | see: United States Total Non-Farm Payrolls in Millions (seasonally adjusted) 2001-2011.

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With less economic growth, and no growth in global oil production leading to permanently higher oil prices, the United States is trying to operate its Empire at previous levels. Now you know why the country along with the rest of West has gone more deeply into debt. The population keeps growing, obligations keep expanding, inputs costs keep rising. But growth keeps slowing. | see: Global Average Annual Crude Oil Production mbpd 2001 – 2011.

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Care to forecast the US will return to economic growth, given energy prices and aggregate levels of debt in the OECD nations? Good luck with that. The US could certainly increase taxes, and reduce government spending. But that won’t restore economic growth. How about increasing annual government deficits more rapidly, to double our debt even faster? Good luck with that too. As I have written before, the energy limit and total debt now trump the tiresome argument between Austrians and Keynesians, rendering the conversation moot.

There was a time when many “experts” forecast that oil prices would come back down, and that global oil production would increase. Six years later, you don’t hear much from these people anymore. Their books, asserting there never was or would be an oil crisis, can now be had for .99 cents through used bookstores on the Amazon network. I expect them to be joined by economic revival advocates, no later than mid-decade. Growth in real terms, in the OECD nations, has now basically come to an end.

–Gregor

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To Increase Jobs, Increase Economic Freedom

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Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders, including employees and communities.

By JOHN MACKEY

Is the United States exceptional? Of course we are! Two hundred years ago we were one of the poorest countries in the world. We accounted for less than 1% of the world’s total GDP. Today our GDP is 23% of the world’s total and more than twice as large as the No. 2 country’s, China.

America became the wealthiest country because for most of our history we have followed the basic principles of economic freedom: property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.

The success of economic freedom in increasing human prosperity, extending our life spans and improving the quality of our lives in countless ways is the most extraordinary global story of the past 200 years. Gross domestic product per capita has increased by a factor of 1,000% across the world and almost 2,000% in the U.S. during these last two centuries. In 1800, 85% of everyone alive lived on less than $1 per day (in 2000 dollars). Today only 17% do. If current long-term trend lines of economic growth continue, we will see abject poverty almost completely eradicated in the 21st century. Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders—customers, employees, suppliers, investors and communities.

So why is our economy barely growing and unemployment stuck at over 9%? I believe the answer is very simple: Economic freedom is declining in the U.S. In 2000, the U.S. was ranked third in the world behind only Hong Kong and Singapore in the Index of Economic Freedom, published annually by this newspaper and the Heritage Foundation. In 2011, we fell to ninth behind such countries as Australia, New Zealand, Canada and Ireland.

The reforms we need to make are extensive. I want to make a few suggestions that, as an independent, I hope will stimulate thinking and constructive discussion among concerned Americans no matter what their politics are.

Most importantly, we need to radically cut the size and cost of government. One hundred years ago the total cost of government at all levels in the U.S.—local, state and federal—was only 8% of our GDP. In 2010, it was 40%. Government is gobbling up trillions of dollars from our economy to feed itself through high taxes and unprecedented deficit spending—money that could instead be used by individuals to improve their lives and by entrepreneurs to create jobs. Government debt is growing at such a rapid rate that the Congressional Budget Office projects that in the next 70 years public money spent on interest annually will grow to almost 41.4% of GDP ($27.2 trillion) from 1.4% of GDP ($204 billion) in 2010. Today interest on our debt represents about a third of the cost of Social Security; in only 20 years it is estimated that it will exceed the cost of that program.Only if we focus on cutting costs in the four most expensive government programs—Defense, Social Security, Medicare and Medicaid, which together with interest account for about two-thirds of the overall budget—can we make a significant positive impact.

Our defense budget now accounts for 43% of all military spending in the entire world—more than the next 14 largest defense budgets combined. It is time for us to scale back our military commitments and reduce our spending to something more in line with our percentage of the world GDP, or 23%. Doing this would save more than $300 billion every year.

Social Security and Medicare need serious reforms to be sustainable over the long term. The demographic crisis for these entitlement programs has now arrived as 10,000 baby boomers are projected to retire every day for the next 19 years. Retirement ages need to be steadily raised to reflect our increased longevity. These programs should also be means-tested. Countries such as Chile and Singapore successfully privatized their retirement programs, making them sustainable. We should move in a similar direction by giving everyone the option to voluntarily opt out of the governmental system into private alternatives, phasing this in over time to help keep the current system solvent.

In addition, tax reform is essential to jobs and prosperity. Most tax deductions and loopholes should be eliminated, combined with significant tax rate reductions. A top tax rate of 15% to 20% with no deductions would be fairer, greatly stimulate economic growth and job creation, and would reduce deficits by increasing total taxes paid to the federal government.

Why would taxes collected go up if rates go down? Two reasons—first, tax shelters such as the mortgage interest deduction used primarily by more affluent taxpayers would be eliminated; and secondly, the taxable base would increase considerably as entrepreneurs create new businesses and new jobs, and as people earn more money. Many Eastern European countries implemented low flat tax rates in the past decade, including Russia in 2001 (13%) and Ukraine in 2004 (15%), and experienced strong economic growth and increased tax revenues.

Corporate taxes also need to be reformed. According to the Organization for Economic Cooperation and Development, the U.S.’s combined state and federal corporate tax rate of 39.2% became the highest in the world after Japan cut its rates this April. A reduction to 26% would equal the average corporate tax rate in the 15 largest industrialized countries. That would help our companies to use their capital more productively to grow and create jobs in the U.S

Government regulations definitely need to be reformed. According to the Small Business Administration, total regulatory costs amount to about $1.75 trillion annually, nearly twice as much as all individual income taxes collected last year. While some regulations create important safeguards for public health and the environment, far too many simply protect existing business interests and discourage entrepreneurship. Specifically, many government regulations in education, health care and energy prevent entrepreneurship and innovation from revolutionizing and re-energizing these very important parts of our economy.

A simple reform that would make a monumental difference would be to require all federal regulations to have a sunset provision. All regulations should automatically expire after 10 years unless a mandatory cost-benefit analysis has been completed that proves the regulations have created significantly more societal benefit than harm. Currently thousands of new regulations are added each year and virtually none ever disappear.

According to a recent poll, more than two-thirds of Americans now believe that America is in “decline.” While we are certainly going through difficult times our decline is not inevitable—it can and must be reversed. The U.S. is still an extraordinary country by almost any measure. If we once again embrace the principles of individual and economic freedom that made us both prosperous and exceptional, we can help lead the world towards a better future for all.

Mr. Mackey, co-founder and co-CEO of Whole Foods Market, is a member of the Job Creators Alliance, a nonprofit devoted to preserving free enterprise.

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A Grim Warning For The Global Economy..

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by Joe Weisenthal

From the OECD (via Bloomberg), a prediction of mediocre growth and a call for “bold action.”

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Bold decisions are needed from the G20 leaders meeting in Cannes this week to get the global economy back on track, said OECD Secretary-General Angel Gurría.
An important first step has already been taken with the debt and banking crisis rescue plan announced by EU leaders on October 26 2011, but these measures must be implemented “promptly and forcefully”, he added.
Presenting a special Briefing Note ahead of the Cannes Summit, Mr Gurría said without decisive action the outlook is gloomy. The OECD projects GDP growth to remain weak in the advanced G20 economies over the next two years while the pace of activity in the major emerging markets is likely to be lower than in the pre-crisis period.

The near-term outlook

  • Uncertainties regarding the short-term economic outlook have risen dramatically in recent months. A number of events, notably related to the euro area debt crisis and fiscal policy in the United States, are likely to dominate economic developments in the coming two years. In an “events-free” scenario and in the absence of comprehensive policy action to resolve current problems, real GDP is projected to grow by about 3.9% this year, 3.8% in 2012 and 4.6% in 2013 on average in G20 countries.1 This average masks a wide divergence among country groupings, and emerging-market economies are much more buoyant, despite some softening. In the euro area, a marked slowdown with patches of mild negative growth is likely. Growth is also projected to remain weak in the United States, with a gradual pick-up from 2012 towards the end of the projection period. Unemployment is set to remain high in many advanced countries.
  • A better upside scenario can materialize if the policy measures that were announced at the Euro Summit of 26 October are implemented promptly and forcefully. These measures go in the right direction and could help restore confidence and create positive feed-back effects that could trigger a scenario of stronger growth.
  • In contrast, the outlook would be gloomier if the commitments made by EU Leaders fail to restore confidence and a disorderly sovereign debt situation were to occur in the euro area with contagion to other countries, and/or if fiscal policy turned out to be excessively tight in the United States. OECD analysis suggests that a deterioration of financial conditions of the magnitude observed during the global crisis (between the latter half of 2007 and the first quarter of 2009) could lead to a drop in the level of GDP in some of the major OECD economies of up to 5% by the first half of 2013.
    Appropriate policy responses
  • To resolve the euro area crisis, it is important to clarify and implement fully and decisively the measures announced on 26 October to break the link between sovereign debt and banking distress, to deal with Greece, to ensure that the sovereign debt crisis does not spread to other European countries and to secure appropriate capitalization and funding for banks. Detailed information is needed on how the package will be implemented.
  • In the advanced G20 economies, interest rates should remain on hold or, where possible, be reduced; notably in the euro area. Central banks should continue to provide ample liquidity to ease financial market tensions. Further monetary relaxation, including through unconventional measures, would be warranted if downside risks intensify. In the emerging-market economies, the stance of monetary policy should be guided by the outlook for growth and inflation, which remains comparatively high.
  • Strong, credible medium-term frameworks for fiscal consolidation and durable growth are needed to restore confidence in the longer-term sustainability of the public finances and to build budgetary space to deal with short-term economic weakness. Those advanced economies with sounder public finances can provide additional counter-cyclical support.
  • Structural reforms are essential to boost the growth potential of G20 countries, to tackle high unemployment and to rebalance global demand. In view of weak growth in the near term and impaired fiscal positions in most advanced economies, priority should be given to reforms that offer comparatively strong short-term activity gains and facilitate longer-term fiscal consolidation.
  • In Cannes, G20 leaders will discuss an Action Plan with bold commitments for mutually reinforcing macroeconomic policies and structural reforms. In 2008, G20 leaders rose to the challenge with a clear and coherent plan and we avoided a second Great Depression. Today, the adoption and implementation of the Action Plan is just as imperative to restore confidence through decisive actions in specific countries and regions.

The projections reported in the Briefing Note are preliminary and will be updated in the OECD Economic Outlook No. 90 to be released on 28 November 2011.

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World Bank: ditch fossil fuel subsidies to address climate change

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Leaked Leaked documents seen by Guardian say rich countries should use money to help poorer countries adapt to climate change

World Bank documents propose that rich countries should eliminate the $50bn a year they give in fossil fuel subsidies, in order to financially help poor countries address climate change.

The documents, due to be presented to the G20 finance ministers in November, also suggest that countries redirect “climate aid” money already pledged, towards the propping up ailing carbon markets.

The Mobilizing Climate Finance paper, seen in draft form by the Guardian, has been prepared at the request of the world’s leading economies. It is likely to provide a template for action in the UN climate talks that resume in Panama next week, in preparation for a major meeting of 194 countries in Durban in November.

According to the confidential paper, there is little likelihood that in the current economic climate, public money will be available for raising the $30bn rich countries have pledged for the 2010-2012 period, and the $100bn a year that must be found by 2020. Instead, says the paper, “the large financial flows required for climate stabilization and adaptation will, in the long run, be mainly private in composition”.

It says: “A starting point should be the removal of subsidies on fossil fuel use. New OECD estimates indicate that reported fossil fuel production and consumption supports in Annex II countries [24 OECD countries] amounted to about $40-$60bn per year in 2005-2010 … if reforms resulted in 20% of the current level of support being redirected to public climate finance, this could yield $10bn per year.

“Reform of fossil fuel subsidies in developed countries is a promising near-term option because of its potential to improve economic efficiency and raise revenue in addition to environmental benefits.”

New analysis, says the paper, suggests that half the $50bn-a-year fossil fuel subsidies go to the oil industry, and around a quarter to coal and natural gas. It says: “About two-thirds of total fossil fuel support in 2010 was estimated to be for consumer support, with a little over 20% being producer support.”

Developing countries are increasingly frustrated by the refusal of rich countries to meet their climate finance pledges. But they are unlikely to approve of the bank’s innovative proposal that some of the money pledged to them should be used to prop up struggling carbon markets.

The report proposes: “Governments could make innovative uses of climate finance to sustain momentum in the market while new initiatives are being developed. They could, for example, dedicate a fraction of their international climate finance pledges to procure carbon credits for testing and showcasing new approaches, such as country programme concepts, new methodologies, CDM reforms and new mechanisms.

“This would be a cost-efficient use of climate finance as it would target least cost-options and would be performance-based. It would also help build up a supply pipeline for a future scaled-up market, preventing future supply shortages and price pressures.”

It also appears to back a levy on aviation and maritime fuels. “Increasing from zero a tax on an activity that causes environmental damage is likely to be a more efficient way to raise revenue than would be increasing a tax that already causes significant distortion.”

“A globally implemented carbon charge of $25/tonne CO2 on fuel used could raise around $13bn from international aviation and around $26bn from international maritime transport in 2020, while reducing CO2 emissions from each industry by around 5 to 10%. Compensating developing countries for the economic harm they might suffer from such charges … seems unlikely to require more than 40% of global revenues. This would leave about $24bn or more for climate finance or other uses,” says the paper.

Last month, the UK shipping industry’s trade body roundly rejected calls to be brought into the EU’s carbon trading scheme, saying that any solution to reducing the industry’s emissions must be global.

Original Article

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