Wyoming Liberty Group
This week's big news on the economic front is the fiscal crisis in Puerto Rico. With a debt at 70 percent of its GDP the U.S. territory has assumed debt payment obligations that go well beyond what its $28,500-per-year GDP per capita can pay for. Time is running out for San Juan to come up with a solution; if they don't, bankruptcy is a real possibility.
Earlier this week, in an outlook toward the federal government's budget problems over the next few years, I outlined a troubling but entirely realistic scenario:
It is the spring of 2020. The U.S. economy is humming along at an unimpressive growth rate of a bit more than two percent per year. The federal budget has been running growing deficits for the past few years, and the forecast for 2020 is a deficit of $554 billion. Congress is borrowing more than eleven percent of every dollar it spends. Interest rates on Treasury bonds are at four percent, with forecasts predicting an upward trend for the rest of the year. Total unemployment, six percent, is steady and shows no tendency of shrinking. Almost 9 percent of America's youth are unemployed, with no decline in sight. A recession begins. Normally, this would be not be much of a problem. Normally, the American economy could ride it out - much like the Millennium Recession - and get back to business in 18-24 months. This time, though, it is going to be different. Painfully different.
This is a serious matter that all Wyomingites need to pay attention to. From the Center for Freedom and Prosperity:
The Organization for Economic Cooperation and Development (OECD) is directing considerable resources toward development of a new framework for taxation of multinational enterprises. According to tax bureaucrats at the OECD, the G20, and finance ministers from large welfare states, base erosion and profit shifting (BEPS) is a serious problem that requires drastic action. Without input from the United States Congress and other elected national bodies, they are rushing to rewrite the rules of global commerce. Available data does not support the contention that BEPS is a serious concern. Nevertheless, the OECD’s sweeping proposals to combat BEPS would create a privacy nightmare and stifle economic growth. Even if there were a problem, better policy responses are available. The simplest and most powerful being adoption of pro-growth tax rates. To make sense of the sudden push for a massive, multinational undertaking where costs are likely to be significant and benefits small at best, if they exist at all, the OECD’s project on BEPS must be viewed in the context of the organization’s long-standing war on tax competition.
In my Op-Ed in The Hill today I explain why we need to add a Balanced Budget Amendment to the U.S. Constitution:
Inevitably, a debt crisis is coming. We know it will happen - the only uncertain thing about it is to forecast when it will happen. Practically no economist was able to predict the unfolding of the current European government debt crisis. On the contrary, many forecasts were still predicting “business as usual” as late as in 2007. It is just as difficult to say when the U.S. debt becomes an acute crisis. All we know is that the crisis will come. That is as certain as an earthquake in California. And that makes the Obama budget all the more irresponsible. Fortunately, there are some encouraging signs of fledgling fiscal responsibility in Congress. The GOP budget for 2016 slowly reduces the deficit over nine years and balances the budget by 2025. This is a welcome change for the better. There is just one caveat. The GOP budget won't become actual policy unless the Republicans win the next five Congressional elections and the next three presidential elections. We need a better insurance policy against the looming debt earthquake. It is time to reopen the case for a balanced budget amendment to the constitution.
Over the last couple of weeks I have pushed strongly on the need for major reforms to the Wyoming economy. Specifically, our state lawmakers and our governor must focus on two problems, which basically are communicating vessels and soluble only when addressed together:
- The looming deficit in the state budget, which is really a structural deficit unmasked by deflating minerals prices; and
- Our big government sector, with high levels of welfare-state spending and large ranks of state and - especially - local government employees.
2016 is just around the corner. It looks like this is going to be an exciting election year.
Well, maybe not across the board. The Democrat field of presidential candidates is centered around a party-endorsed candidate. Democrat primary voters can vote for whoever they want, so long as the person they vote for is Hillary Clinton. Her inevitability is even more pronounced than Mitt Romney's GOP nomination was in 2012.