Just as we have predicted at The Epicurus Institute for some time, projected Gross Domestic Product at 3.2% was overestimated by government officials. Today, the figure is much closer to 2.8%, and we predict that will move lower in the next quarter.
Gross Domestic Product (GDP) is the broadest measure of economic activity in the nation. Last year, government officials predicted a 3.2% rate for 2010, and higher for 2011. Reports like that restore confidence among investors and spur business activity.
However, in this case, officials were compelled to reduce their forecasts as the economic downturn has caused municipal, county and state governments to curtail spending, reducing the rate to 2.8%.
For quite a long time, we have held that there is a global economic depression underway. While others have called it a recession and said publicly that the recession is ended, we maintain that the depression is different than a recession, and that we are likely to see further declines in GDP moving forward.
As the various levels of government experience continued declines in tax revenues they are forced to reduce payrolls, expenditures and close facilities. Corporations are also going to see declining revenues, not only from contracts with state and local government being reduced or eliminated, but also from a decline in consumer spending. More and more people are losing jobs. Unemployment benefits are running out for more and more of the so-called “99ers” who’ve depleted 99 weeks of benefits.
Wisconsin is not the only state seeking to reduce spending through breaking the cost of union benefits. If successful, most every state in the nation will follow suit, seeking to reduce costs. Shortly after, even the Federal government will become involved, not in defense of unions, but against them.
Despite their anti-regulation platform, if in power at that time, the Republican leadership will seek to compel every worker to pay into Social Security and Medicare, probably eliminating caps on wages. More so, the unions that have raised the costs of government payrolls and retirement funds will likely be subject to serious review. Organized labor for government workers will bear the initial brunt of this, but private unions will soon experience the consequential effects.
First and foremost, government must end double-dipping. This is the practice of collecting multiple benefits. Let’s say that a worker for a railroad has retired at age 60 (the threshold for that contract), with a substantial pension check coming in every month, he takes another job, works for five years. The company that hired him in his post-railroad years downsizes and he’s laid off. Now, in addition to his railroad pension, he may file for 99 weeks of unemployment benefits and, file for Social Security when he turns 67. He will literally make more money doing nothing than when he worked.
Just as Reagan reformed welfare, compelling those who collect it to work at government offices, it is likely Congress will consider a similar program for unemployment insurance. While the public may balk at this notion, in fact, it makes good sense for those who collect those payments. It would serve to keep them active, and let them keep their resumes up to date. It would help struggling municipalities and states by providing a low-cost labor pool.
It is ironic that many of those collecting double or triple dip benefits, or living singularly on the social support network developed in the 1930’s have protested, strongly, against President Obama, calling him a socialist.
The fact that GDP is declining does indicate that the time is come to take decisive action to fix mistakes of years gone by. It is important to note that the Federal government’s tax receipts will be greatly reduced as time goes by, forcing more and more tax increases. While tax breaks provided by Congress may seem great to some, ultimately, government is likely to raise the tax rate over 50% and close the loopholes.
Revolutions in the Middle East may seem lighthearted by comparison to what might happen here with diminished employment, raised taxes and broken union.