Big Myths about the US Economy

The problem with what passes for debate about American capitalism these days is that it’s underpinned by lies and spin. Do you believe any of these tall tales?

Most people have no idea what’s really going on in the economy. They’re living on spin, myths and downright lies. And if we don’t know the facts, how can we make intelligent decisions? There’s just one problem: We’re still living in a fantasyland.

Here are the three biggest economic myths — the things everything thinks they know about the economy that just ain’t so:

Taxes have been going up and are high compared to levels in other countries.

The first part is wrong; the second is also wrong but contains a grain of truth.

The percentage of income that Americans spend on taxes is the lowest it’s been since 1958, according an analysis by USA Today. And with the exception of five years after the 1986 Tax Reform Act, the highest marginal income and corporate tax rates are the lowest they’ve been since World War II.

The only tax increases passed during the Obama administration were part of the health-care reform bill, through which Congress, among other things, raised the Medicare payroll tax for high earners, said Curtis Dubay, a senior tax policy analyst at the Heritage Foundation. The problem, he said, is the federal corporate tax rate, which stands at 35 percent.

While it’s true the official rate is high, few corporations pay it, said Robertson Williams of the Tax Policy Center.

“The effective tax rates that corporations pay actually goes down a lot with deductions and puts us closer to the middle of the pack,” he said. “It complicates the tax system substantially and makes it more difficult for corporations to figure out what their taxes are.”

 

Land of Homeowners

The dream of owning a home is actually more the reality in other countries. In the book, the authors point to the most recent data, which show only 68% of Americans owned their home in 2002, compared with 92% in Hungry, 84% in Mexico, 72% in the U.K. and 71% in Australia.

“One of the things that are a cherished notion about America is we are a nation of homeowners, and homeownership has long been seen as kind of the bedrock of the American dream,” says Seager. “I think the current economic crisis and the housing crisis is really shaking that American cherished view of ourselves as having easy access to homeownership.”

This is evident in another stat laid out in the book, which shows 83% of people agreed that buying a home was a safe investment in 2003, compared with 70% in 2010.

 

Unemployment is below 10%

What nonsense that is. The official jobless rate, at 9.5%, is a fiction and should be treated as such. It doesn’t even count everyone who is unemployed.

The so-called “underemployment rate,” or U-6, is an improvement — it counts discouraged job seekers and those who work part time because they can’t find full-time work. That rate right now is 16.5%, just below its recent high and twice the level it was a few years ago.

An analysis of data at the Labor Department shows that there are 79 million men in America from the ages of 25 to 65. And nearly 18 million of them, or more than 22%, are out of work completely.

Add to that figure those who are working part time because they can’t get full-time work, and about one in four men of prime working age lacks a full-time job.

 

The U.S. Federal government debt is just $14.3 trillion.

Mr. Bernanke has stated before a congressional committee that it is actually several times that. He should know, and I don’t think that this is something he would lie about, especially in testimony in front of Congress. Like the U.S. banks, the federal government seems to carry a lot of its liabilities off the books.

The largest liability of the U.S. government is the cost of retiring the Baby Boomer generation. Completely unfunded entitlements in this regard are estimated to be some $60 trillion – an enormous sum almost equivalent to the GDP of the entire planet. Most other developed countries have a designated reserve fund, which collects interest on investments, to at least partially cover the retirement entitlements of its workers. The U.S. also has such a fund but its balance is currently zero.

To compound this problem, various states have also looted their retirement fund accounts. Although no one can really say at this time what these unfunded entitlements add up to, it will certainly be a liability of staggering magnitude.

 

Land of Opportunity

Just like the ideal of owning a home, opportunity in this country is now also on the brink.

 

“Opportunity in this country means a chance for an education … [and] a chance for a decent job that allows you to have a decent life,” says Enloe, who points to two key factors that hinder people making it here in America.

The cost of a college education continues to rise year after year.

 

Conclusions

There are some that believe that the U.S. government can keep running large deficits indefinitely. Mr. Bernanke, for one, disagrees strongly and has warned Congress more than once that the growing national debt is the gravest danger that the country faces. There are some others who believe that simply cutting government spending drastically will solve the deficit problem. But when the economy is so dependent on government spending I can’t see how that would not create even more immediate problems.

I am surprised that so many economists were surprised at the recent disappointing jobs numbers. Are they observing some parallel universe where U.S. government stimulus, including aid to cash strapped state governments, is not winding down? I believe that relatively soon we will see Thursday’s jobless claims number pop above 500,000. Then watch out.