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.