Wednesday, August 30, 2006

Good Economic News

We must take a number of issues into consideration before casting our vote. The economy is one of these important issues.

The Catholic Church is opposed to both communism and unrestricted capitalism. The Church recognizes that the economy is for people and not the other way around. In The United States we have many regulations that protect both workers and consumers. It can be argued that some of the regulations are too restrictive. Some would argue that more regulations are necessary.

When the Church condemns unrestricted capitalism, she is not condemning the American spirit of entrepreneurship. This spirit has helped many to rise out of poverty and live happy and successful lives.

Who has the best approach in fighting the war on poverty? There are many issues on which people of good will can come down on different sides, debate and disagree. People of good will can disagree about the best way to help the poor, but not whether or not we have an obligation to help the poor.

Democrats place their emphasis on higher taxes and increased government spending on programs that give direct aid to the poor. Republicans, while not neglecting government’s role to provide a safety net for the poor, tend to emphasize the role of the private sector; Churches, keeping families together, teaching personal responsibility and creating enterprise zones to fight poverty. Republicans tend to believe that families should be able to keep more of what they earn and that they are better able to decide how to spend it than the government.

This fits in very well with the Catholic principle of subsidiarity which was defined in Pope John Paul II’s 1991 encyclical Centisimus Annus in this way:

... the principle of subsidiarity must be respected: a community of a higher order should not interfere in the internal life of a community of a lower order, depriving the latter of its functions, but rather should support it in case of need and help to coordinate its activity with the activities of the rest of society, always with a view to the common good.

Because the dominant mainstream media tend to have a bias against Republicans, they tend to downplay good news and emphasize the bad when a Republican Administration is in power. New York Times columnist Paul Krugman is constantly predicting a recession. Some day there will be a recession and he no doubt will remind us if what a prophet he was. In the meantime, the United States is experiencing a booming economy thanks at least in part to the leadership of President Bush.

First let’s look at what President Bush inherited. At the end of the Clinton Administration there was a sharp decline in the stock market. This was due to corporate scandals at companies like Enron and Tyco. High technology stocks were found to be priced far above their real value. This was the Internet bubble-meltdown. Then the attacks of September 11 also took a huge toll on the economy.
But since then the economy has recovered remarkably, despite the Iraq War and the devastation caused by Hurricane Katrina. In mid-2003, President Bush slashed the high marginal tax rates on investment in mid-2003.

Since August of 2003, 5.5 million jobs have been created. The unemployment rate is at an historic low of 4.8%. An old Chinese proverb says that if you give a man a fish, you have fed him for the day. If you teach a man to fish, you feed him for a lifetime. Isn't it better to create a strong economy that produces jobs, rather than strangle the economy with high taxes and increase government spending on anti-poverty programs which have proved to exacerbate the problem of poverty by creating dependency and breaking up families?

In Centisimus Annus Pope John Paul II, while acknowledging government's role to help the poor, strongly criticized the "Social Assistance State by saying:

...excesses and abuses, especially in recent years, have provoked very harsh criticisms of the Welfare State, dubbed the "Social Assistance State." Malfunctions and defects in the Social Assistance State are the result of an inadequate understanding of the tasks proper to the State.

....By intervening directly and depriving society of its responsibility, the Social Assistance State leads to a loss of human energies and an inordinate increase of public agencies, which are dominated more by bureaucratic ways of thinking than by concern for serving their clients, and which are accompanied by an enormous increase in spending. In fact, it would appear that needs are best understood and satisfied by people who are closest to them and who act as neighbors to those in need.

Gross domestic product (GDP) measures the value of all goods and services produced within the United States. GDP is considered the best measure of the country's economic condition. GDP has grown 4 percent in the first half of 2006. In fact, there have been only 6 negative GDP quarters since President Reagan’s tax cuts of 1981. Top tax rates were at 70 percent before Reagan cut them. They were at 91 percent when Democrat President John F. Kennedy cut taxes. Kennedy’s tax cuts also helped to spur economic growth in the 1960’s.

How does cutting taxes help economic growth? When individuals are allowed to keep more of the money they earn, they spend it and invest it. Businesses use this money to grow their business and hire new workers who also spend and invest. In turn, this leads to even more revenues collected in taxes. Tax revenue has grown around 14.5 percent for the second year in a row. 11.4 percent was expected. This is the biggest gain in 25 years. Total tax receipts collected in 2006 are on target to be $2.4 trillion. This is about $400 billion the amount collected in the peak year of 2000. Income-tax collections have grown largely due to the success of owner-operated business entrepreneurs and other self-employed.

There are two measures of employment in the United States. One is called the household survey. The self-employed are not always taken into account in other surveys. They tend to prefer unincorporated Subchapter S or limited-liability company partnerships and are often not counted. They are counted in the household employment survey which is at a record high.

Rising tax revenue also means that federal budget deficit is shrinking. Deficits are 30% lower than expected. The Congressional Budget Office now acknowledges that deficit projections were $100 billion too high.

Among other signs of a thriving economy are that retail sales in July were far above Wall Street’s expectations. Industrial production is up 5%. Productivity rates are high. Mortgage rates are declining. The stock market is close a five year high. Inflation also remains low. The Federal Reserve decided at its August 8 meeting to hold interest rates at 5.25%. Long term bond rates are falling. Gold prices are also falling. This is another sign of low inflation.

Growing economies in China and India have increased demand and higher prices, but finally, gas prices are falling. Higher prices have led to less gas consumption. Gas companies have also used their profits to increase production. For the first time in fifteen years, over 1000 oil wells have been drilled in the United States. Total oil exploration and development is 30 percent higher than in 2005. Unleaded gasoline futures have been dropping. Thus we can expect relief at the pump soon. Obviously we need to focus on alternatives to fossil fuels, so that we are no longer dependent on foreign counties at enmity with us.

Larry Kudlow, a recent convert to the Catholic faith, says of the current economy ”With low tax-rates, strong economic growth, and shrinking budget deficits,— it’s still the greatest story never told.

Many of the issues discussed above are issues about which people of good will can debate and disagree. We can debate over the best way to help the poor, but not about whether we have an obligation to help the poor. We can debate and disagree about how to bring legal protection to unborn children, but not whether unborn children deserve such protection.

In debating various approaches to the economy and helping the poor, no policy proposed by either of the major political parties rises to the level of the protection of the unborn. Thus if all other things were equal, if one were to agree with a particular candidate’s approach to the economy over another candidate’s position, it would not be a sufficient reason to vote for the candidate if that candidate, if your favored candidate was “pro-choice” on the issue of abortion. Since the choice involves the taking of an innocent human life.

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