Federal Reserve

We Need Better Ideas Than These…

By David Stockman  |  February 5, 2019

Well, God give them wisdom that have it; and those that are fools, let them use their talents.

– William Shakespeare, Twelfth Night, Act One, Scene Five (1602)

As deranged by the Donald are this new era’s leftists, so too are these “conservatives” around a sharp bend.

The day after I dared question – on MSNBC – NATO’s relevance three decades after the fall of the “Evil Empire,” I heard it said that federal revenues were up in 2018, so the Trump tax cut financed itself.

It’ll take something sharper than that to cut through the noise from Nancy Pelosi’s full-fledged progressive lunatics…

Who now control the U.S. House of Representatives…

Folks, “federal revenue” goes go up every year. It sounds “simple.” And it is… in a way… and maybe not the way you might think.

Here’s what I mean…

“Nominal” gross domestic product (GDP) goes up every year, too. Well, it has in 67 of the 68 years since 1950.

[Click to Enlarge]

The only exception is 2009. And we know what was going on then.

Indeed, you can still see impact of the Global Financial Crisis/Great Recession. And you don’t even have to look that hard.

White spaces in the chart represent recessions. That last one was rough, the only one of 10 where federal revenue didn’t rise.

OK, here’s the deal.

Uncle Sam taxes nominal incomes – GDP, in other words.

So, even if real GDP is flat to mildly negative, federal revenue can go up year-in, year-out… these days, it’s because monetary central planners get their 2% inflation.

The bottom line – if you want the financial truth – is you must compare actual post-Trump tax cut revenue with the estimate of what would have been generated at the prior rate.

That’s “apples to apples.”

But when you start to get to that level, it doesn’t look as good as Bubblevision partisans would have you believe.

In the first place, preliminary data show that, as a technical matter, federal revenue didn’t go up in calendar 2018.

And, at a deeper, “core-to-core” level, we saw an actual slowdown in wage and salary growth.

That’s what’s happening on the ground… to Main Street voters, who live the real terrain, not the simple maps these “conservative” clowns draw.

Here comes another one, in the form of new book, Trumponomics: Inside the America First Plan to Revive the Economy, authored by the “intellectual” cohort in that car, Art Laffer and Stephen Moore.

Here they discuss their advice to the Donald during the campaign and after he disrupted the Clinton Restoration.

It’s no wonder – erstwhile “King of Debt,” current “low interest man” – didn’t give a second thought to the $2 trillion of red ink embedded in the “biggest tax cut ever”:

Our view about the impact of debt and deficits doesn’t fit in the conservative or liberal basket. We are not opposed to debt per se. As Larry would say to Trump on several occasions, perhaps with little exaggeration: “This country was built on debt.” But Trump, the self-described “king of debt,” understood what he meant by that…

We assured Donald Trump that a business tax would help most dramatically to restore American economic growth. He asked how big of a tax cut we could afford. We told him to go as big as possible… To get the economy jump-started and to help middle-class workers. “Don’t get stressed out by phony numbers of Washington’s bean counters,” Larry instructed. “They are always wrong. And the benefits of a higher economic growth far outweigh the cost of short-term deficits.  

Of course, a few years ago, when Obama was in the White House, they were singing a different tune:

So, every dollar the government borrows and spends is money taken out of the economy from the person who buys the bonds… So, at best, the net effect of borrowing on stimulating the economy is zero.

This is what happens when “leading” conservative commentators, thinkers, and economists become rank political opportunists.

They want you to buy at these still-nosebleed-level price-to-earnings ratios. They want you to believe the American economy is getting better all the time

They’re clowns. And they’re selling snake oil.

We don’t really need to wait for Nancy Pelosi’s legions and AOC-and-MMT-style socialism to wreak havoc on the American economy.

These so-called conservatives are already doing the job.

“Behind the Lines” Stuff…

Alexandria Ocasio-Cortez – or “AOC,” as a fawning Mainstream Media has anointed her – is the Member of the U.S. House of Representatives from New York’s 14th district.

Modern monetary theory – or “MMT” – is a theory from the left that rationalizes government debt and deficits.

AOC-and-MMT-style socialism just might be the new elixir of empire.

It’s coming… And you can read all about it in the February issue of The Stockman Letter

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR