By Karl Reiner
The Tea Party’s agenda developed during the tumultuous housing sector collapse that sent the economy into a tailspin. Its adherents in Congress want to solve the federal deficit problem and other national economic ills by reducing government, cutting taxes and chopping spending. The solution is flawed because it ignores the problems caused by the recession and the fact that the deficit cannot be tamed without some revenue increases.
The damage inflicted by the Great Recession has been enormous. Analysts’ think the U.S. poverty rate could go as high as 15.7%, the highest since 1965. Millions of people now depend on unemployment insurance, Medicaid, welfare, food stamps and private charity. Food stamp usage has jumped; around 45 million Americans are in the program. Due to expiring unemployment benefits, the high jobless rate and fragile economic recovery, economists do not see much improvement until 2014.
Although the Republican presidential candidate vows to repeal the Patient Protection and Affordable Care Act (Obamacare) if he wins the November election, a recent Congressional Budget Office (CBO) report indicates that the program is not the financial disaster its critics claim. When the effect of the recent Supreme Court ruling is taken into consideration, the number of people covered will be less than anticipated. Obamacare will still reduce the federal budget deficit over a period of years. According to the CBO, its repeal would result in a deficit increase.
The world’s economic growth rate is slipping. World GDP is expected to increase by 3.5% this year. China and the other emerging economies are slowing down. The Euro area is sliding into negative territory. The U.S. GDP growth rate will hover around the 2% mark. The tax increases and spending cuts automatically kicking in at the end of 2012 will make things worse unless the drift to the Tea Party inspired “fiscal cliff’ can be reversed.
The dollars pumped into subprime mortgages and overvalued houses are a thing of the past. America’s biggest banks have written off nearly $500 billion in losses. The national foreclosure rate stands at 3.4%. Many owners find themselves living in houses greatly reduced in value. Others are struggling to make mortgage payments. Across the nation, 6.9% of homeowners are 90 days or more behind in payments. The good news is that housing prices may have finally bottomed; they are currently estimated to be about 19% below fair value.
The drought afflicting the U.S. may be the worst in 50 years. Virtually the entire country is suffering from some form of dryness. The corn and soybean crops are expected to be reduced by 30% or more. With America supplying about 52% of the world’s corn supply and 43% of soybeans, the price of beef, pork, poultry and dairy products will increase.
There are signs of revitalization. Exports of U.S. services are increasing. Scientific, engineering and consulting service exports have doubled since 2006, mostly going to China, Brazil and India. Although it seems counterintuitive, manufacturing employment in the U.S. has risen at a steady pace for the past two years.
New cars are selling well. Small companies (those with fewer than 500 employees) accounted for 34% of U.S. exports in 2010, up from 29% in 2006. The U.S. is enjoying an increase in domestic natural gas production. This is a boon for petrochemical, steel, glass, fertilizer and related manufacturers because they gain a competitive edge in international markets from cheap gas.
Mending the damage inflicted by the recession and bringing the federal deficit under control are not going to be instantaneous events. It is going to take years to clear away the economic rubble remaining in the wake of the Great Recession. By continually fostering political gridlock, the Tea Party conservatives have made the task problematical.