Grover Norquist is likely to be far less powerful. Here is something from my last post that I want to expand a bit.
For example – Grover Norquist is currently a very powerful person. But as it becomes widely recognized that Grover Norquist believes in unicorns, he will become much less powerful. His entire career is built on making people believe something that cannot be true. Take away the potential for default, and the obsession with trying to make the government smaller through a U.S. default does not make sense at all. It’s like going around claiming the sky is falling or something equally preposterous. Grover Norquist will be a much less powerful person in the near future. He has reached his apex of power, and in 5 years, his message will seem anti-U.S., because his basic framework will be recognized as factually incorrect.
It is impossible to lead a fight against taxation as being bad when the most people accept that the government is not spending constrained, but rather inflation constrained.
The U.S. government is not spending constrained and this idea is rapidly becoming conventional wisdom. When John Boehner starts to say “The U.S. cannot default.”, the days of an anti-government, anti-spending crusader are numbered, no matter how funny the guy is.
When the debate moves to inflation rather default, the idea that lower taxes are usually good will become far less contentious. This too will be accepted as conventional wisdom.
Mr. Norquist’s major idea is to keep his party pushing for tax cuts, but to blame democrats for spending. But in the new world where everyone recognizes default is impossible, the backlash from spending will become much smaller. His entire strategy to push for republican dominance over the political process loses is animating force, because the backlash from spending won’t be that great.
So he changes from a visionary, to a hard money crank. But that doesn’t sell very well in the homeland over any 10 year period.
I just got a brief note from The Daily Jobs update. The DJU tracks the reported tax receipts from the U.S. Treasury as a way to look at the jobs market. Because these tax numbers are never adjusted, it is a fantastic real time window to what is happening in the U.S. job market. Think about it – nobody pays taxes unless they have to, so looking at the real time, never adjusted numbers is about as good as you can get for a real time pulse of the economy.
The Daily Jobs update is the only site I subscribe to – I can find nearly everything else on the web easily.
On to the great news – unadjusted tax reciepts are up nearly 10% from March last year. These are the raw numbers – remember we had a huge payroll tax cut. Once you adjust the numbers to accomidate the tax cut and census hiring from last year, the U.S. is collecting over 13% more in taxes than it did last year! Wow!
That is actually quite strong economic growth. I have a chart of the BEA personal tax numbers from FRED, and 13% qualifies for some of the strongest YoY tax growth since 1980. I said before that people are likely missing the turn in employment, and I still think this is the case. We have a very strong economy right now with low inflation. If oil can get below $70, we’re in for the largest economic boom of my lifetime.
We’re in the beginning stages of what could be a gigantic economic boom. Just recently, we had knockout numbers in two different reports. These numbers weren’t good, they were great.
First, the Personal Income numbers were stupendous. The real personal income number was in the top 5% of the last 20 years. More importantly, it is clear from the personal income numbers that the 2% Payroll Tax reduction is a much greater tax reduction than the first round Obama tax cuts.
From the numbers, it appears that this tax cut added $44bn to personal income in January. Annualized, this is a remarkable $528bn to personal income! January is typically a large month for income, so we’re not going to see quite that much of an increase in PI.
But even rounded down significantly, this change is on the roughly 3% of GDP. That is a gigantic difference in personal income.
The estimated impact of the 2% payroll tax cut was supposed to be $120bn
Because PI is calculated as a change from last month, we’re not going to see the huge difference recur again and again. However, the benefit from this tax reduction will be ongoing and huge.
Then, the Chicago ISM crushed it like Frank Thomas used to back in 1995.
The Chicago ISM came out with its best reading in 23 years. New orders were the best since 1983. Order backlog highest since 1994. This report was really, really good.
This graph has been mentioned a few different places. The idea is that government spending didn’t really accelerate during the crisis – in fact, you can barely tell any difference at all in the total amount of spending. But I don’t like this graph for a few reasons. First, it has a 10 year time line, which is too short to tell if the trend is really solid. Then, it has called attention to your eye by using the recession bars. Also, it uses raw numbers, and not log numbers. Log numbers are appropriate for dealing with things that grown exponentially, like economies.
Clearly, this chart could be improved with a few simple changes. It would show what actually happened better, and in a way that makes it totally clear that the government hasn’t been out of control in its spending for the last few years. I made a chart of the same data that:
- Covers 20 years instead of 10
- Takes out the recession bars so your eye does not know where to look for more or less spending
- Uses logarithmic scaling to account for exponential growth
I think this updated chart shows pretty well that the entire deficit we’re facing today was due to a falloff in tax collections prompted by a huge drop in economic activity, not runaway spending by the U.S. government. I think this chart more accurately shows the real change in government spending due to the crisis: nearly nothing. State governments cut back as much as the federal government expanded spending, so the net effect was as though there was no extra spending at all.
Once we take into account that nearly all of the extra federal spending went directly to prop up the banks, then this graph becomes even worse. If we correct for this, government spending probably actually fell for normal people.
Of course, I’ve played a trick with the data. I included the 1990’s in this graph. Remember the Surpluses of the late 1990s? I do. Can you spot the surpluses we had in the late 1990s? No? Me neither. Seems likely the surpluses were due to economic growth and not any spending constraints.
Our government deficit – or surplus – is determined almost entirely by the amount of taxes collected due to economic conditions and not due to dramatic changes in spending.
We had a horrible jobs report last Friday. Absolutely terrible. Not a bit of good news to be found in the report – every number was weak. You can find a number of good data rundowns around the web.
I don’t recall seeing any “Silver Lining in the Unemployment report” analysis anywhere. Anyone writing a report like that would be laughed out of the internets cafe.
But nobody is asking the question that needs to be asked about how this report fits into the big picture, so I will:
How can the U.S. have a string of good economic numbers, but Horrible unemployment numbers?
Look at all of this Good News:
- Taxes collected are much higher than in 2009
- Manufacturing: Strong
- Consumer Spending is holding up
- Job Opening indicators look strongish (ok not fully strong but better)
- Corporate Profits at sky-high levels, and likely to put in another strong quarter for Q4
- Initial Claims falling rapidly
I find it nearly impossible to reconcile these facts with the unemployment numbers. According to the BLS, hours worked has not budged in the last few months, we are creating a pittance of jobs, and earnings are at a standstill. But, according to Treasury, there is this large and consistent positive uptick in the tax information. The U.S is collecting nearly 7% more in payroll taxes this year than last year. But payrolls are up marginally, hours worked isn’t growing, and pay is up .1% last month. How is can these facts be reconciled?
Here is the Answer:
The B/D adjustment missing the turn at the bottom as badly as it missed the turn at the top.
Ritholtz has written a series of articles about this idea -that the B/D adjustment can swamp any other considerations. Mish had a series of posts about this in 2006, 07, and 08. The monthly Birth/Death numbers are subject to a large, one time full year revision in February.*
But the tax information is real time and is never adjusted. What we see today is what we get today. It is the actual dollar amount posted to the Treasury account. Taxes collected are running nearly 7% stronger today than they did last year. Can we really collect 7% more without some quite positive employment numbers – such as substantial hiring or wage increases?
I fount it hard to reconcile, so I looked for a reason it may not be true.
All of this leads me to believe that the fantasy numbers in Unemployment and jobs we saw during the downward turn in 2007-2008 are returning for a encore presentation – this time understating payrolls instead of overstating them.
I am treating the unemployment numbers out of the BLS as suspect – a discarded outlier. I will change my opinion if the other numbers, like tax collections, begin to weaken. However, with the other data coming in strong and the known weakness of the B/D model during economic turning points, the current working assumption is that the BLS numbers are understating job creation.
*This is changing to a quarterly adjustment with next months release.