Thursday, June 11, 2009

Economy Much Worse Than What Is Being Reported

Lets face some facts here.  The government loves to manipulate economic data to serve their own purposes.  According to the government GDP was down about 6% in Q4 2009 and Q1 2009.  Q2 2009 numbers have not been released yet (quarter is not over).  I started thinking about ways to estimate GDP without relying on bogus government numbers, and also get more granularity than a quarterly report.  It turns out that you can easily back your way into GDP by using Hauser's Law.
Hauser proposed a law that total U.S. Federal tax revenues hold constant at about 19.5% of GDP based on the above chart.  The law was proposed about 15 years ago, and most economists did not believe it could be true.  It has continued to hold since that time even though individual income tax rates have varied wildly.  It basically proves that you can't soak the rich with higher taxes as a way to increase tax revenues.  Unfortunately, the concept of soaking the rich to pay for new expansions of social programs is the key to Obama's plans.  This law will need to be broken for Obama to succeed and it has held for 60 years now.  It is actually pretty easy to explain.  If you raise taxes on the rich for example, GDP will contract as a result of the higher taxes, and you end up getting a larger percentage of a smaller pie for a wash.  The reduction of the top bracket from 90% to 70% in the 60s did not hurt tax revenue at all as a percentage of GDP.  When Reagan reduced it again from 70% to 50%, again no reduction.  Even the Bush tax cuts to address the economy after 9/11 did not reduce revenue as a percentage of GDP.   Since Federal tax revenue is a fixed percentage of GDP, the only way to increase it is to grow the economy.  Tax cuts can grow the economy, and as a result increase Federal tax revenues.  Tax increases, shrink the economy, and as a result lower federal tax revenues.  If Obama really wanted more money for the government to spend he should be looking at tax cuts to grow the economy, vs. tax increases that have never worked in the last 60 years.

So if Hauser's law continues to hold today, which I am assuming it does, then changes in tax revenues are directly proportional to the underlying GDP growth.  You can simply look at monthly tax revenues and back your way into GDP.  Below is a scary chart showing 12 month percentage change in monthly Federal Tax Receipts.

As you can see Federal Tax Revenues have fallen off a cliff in 2009, and if Hauser's law is holding the GDP growth chart would look identical to the chart above.  Through the first 5 months of 2009, tax revenues are down 22.7% indicating a GDP contraction of 22.7% which is much higher than the 6% number that is reported.  A contraction of this size puts us easily in the area of a depression.  I used a three month rolling average to pinpoint the start of the depression at February 2008.  The contraction has accelerated in Q2 to twice the level of Q1. Even the Governments bogus numbers should show a GDP contraction of at least 10% in Q2 when reported in July.  This is a massive acceleration of the economic decline.  There are no "Green Shoots" and the economy is not getting worse less fast as reported.  The downturn is accelerating in Q2 2009, and when the stock market gets wind of this, watch out.  

Since Obama's entire economic plan is based on a false premise, the damage can't be undone, unless there is a radical change in policies towards promoting  economic growth.  I doubt that will happen, so we will be waiting until 2012 to start undoing the damage to our economy caused by the Obama administration.

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At 5:11 AM, Anonymous Anonymous said...

You have a Cracker Jack understanding of the economy - much like you have Cracker Jack understanding of everything else.

You know enough about this stuff to sound informed to those who know nothing about it. Anyone with a shred of education or understanding on macro economics knows you're a tool with posts like this.

You have no legitimate argument that tax increases or decreases have a direct effect on GDP. Bush didn't mess with taxes significantly in 2008, yet the economy still sunk. Obama could raise taxes and the GDP is still likely to grow as economy recovery happens.

Yeah, but we'll "wait" for the stock market to get ahold of your genius discovery. The same stock market that's seen significant growth since it bottomed out.

You're wrong again but I'm sure you're used to that.

Also, congratulations on your "dominance" in the weekly fantasy sports market, or rather, being the big fish in a microscopic pond. I'm actually surprised with all your economic and business genius that you haven't figured out that this market isn't "high growth".

At 9:29 AM, Blogger Blinders said...

It's interesting how liberals never argue with facts, but prefer the ad hominem. If you go back and read my May 1st post on supply and demand you will see that I correctly predicted the massive interest rate rise of the last 6 weeks using the proven law of supply and demand. This post is not how taxes affect GDP, its about how taxes are a fixed percentage of GDP. I do not see anything in your reply that disputes that fact. If Hauser's law does not hold now, please explain? How taxes affect GDP would take another post, but simple proven economics show that raising taxes lowers GDP and lowering them increases GDP (with everything else held constant). A simple example is this. If you raise taxes on a high wage earner, the money that is taken by the government, is not spent or saved by the individual. An individual spending or saving grows the economy (increases GDP). Since the government does not produce any real goods or services, and is full of waste, having them spend the money instead will do much less for the economy. Hauser's law actually proves this if you were to open your eyes a bit and try to understand it. While the top rate of income tax has varied wildly over time the percentage stays at 19.5%. The only way this can be true is if raising taxes lowers GDP and lowering taxes raises GDP. Can you explain how Hauser's law can hold for 60 years if that relationship is not true?

As for Daily Fantasy Sports, I do agree that it is a small portion of the market right now, but arguing that it is not "High growth" is just ignoring the facts. We are tripling in size every year against significant economic headwinds. How many other companies can say that right now?

At 4:10 AM, Anonymous Anonymous said...

Actually, what's interesting, is how you stick with the typical fox news ape route of calling anyone who disagrees with you a "liberal".

I didn't mention one thing that would indicate that I'm a liberal, democrat, socialist, marxist, bolshevik or whatever else your weak minded pavlovian reaction is.

Normally I'd suggest thinking on your own once in a while, but we've already seen where that leads.

At 12:25 PM, Blogger Blinders said...

I did not call you a liberal, read the reply. You were the one who used the ad hominem argument, I was just pointing out how liberals never argue with facts, but prefer to use name calling and other logical fallacies instead. I was clearly implying that you argue like a liberal, but did not call you one. Your own replies here support that argument BTW, so it is an argument from facts and not name calling.

Again, you choose to make this about name calling and not about the facts presented in my post. If the facts presented were not true, please explain how? If my logical conclusions based on the facts are wrong, please explain? The fact that I watch Fox News makes no difference on if I am right or wrong in the post, but I noticed that you made that a point in your recent reply.

My track record is solid, and I have a Masters degree in business. On May 1st I predicted that the law of supply and demand would continue to hold, and I was correct. In this post I am saying that Hauser's law will continue to hold. Time will show if I am right here as well. If you are claiming that Obama can bend/break established fundamental economic laws, I think you have the burden of proof here. Calling me "Cracker Jack" or a "fox news watcher" does nothing to support your case. Do you have anything that would support your case at all or is this going to be about name calling. An actual debate on facts may be a learning experience for both of us.


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