US Government Budget Cuts From Where?

The tax cuts have driven up the government deficits and are expected to hit $1 trillion (capital T Trillion, yes) next year. This puts more pressure on Medicare, Medicaid and Social Security, which Republican leaders say needs to be trimmed by $1 trillion (capital T Trillion, yes) even before this news.

Recently there’s been some analysis of deficits that the government doesn’t need to worry about them. In fact, there’s a branch of economy called Modern Monetary Theory that suggests that the role of taxes is to just remove money from the economy to keep it from heating up. If you look at the state of affairs that way, one could say the tax cuts are there to heat up the economy and make it hotter than it already is. Unfortunately, corporations didn’t need the money for growth; they had plenty before the tax cuts. Consumers, on the other hand, have increasing debt loads—most of the growth in auto and student loans as a proportion of the overall debt. Whatever tax cuts most people received isn’t helping them balance their household budgets and it’s not the primary source of increased spending; debt has been growing 5-6% while household incomes have grown a paltry 0.4%. That’s a Roadrunner debt to a Wile E. Coyote income.

Add increased debt to rising prices—tariff-related, wage/cost pressure on producers, etc.—and increasing interest rates for mortgages, credit cards, future auto loans, etc. and the economy as fueled by consumer spending could just slow down. And this might exacerbate the government deficit with lower economic activity and lower income tax revenue, tariff revenue and so on.

Recently, in response the President has asked his cabinet secretaries to reduce the budget 5% across the board. (Firstly, businesses know it’s not a good idea to cut across the board because some areas should actually have more expenditures while others take a deeper cut...) But where would that 5% come from if supposedly Defense is exempt from this dictum. The government overspends by 15-16% (7 dollars for every 6 brought in). In order to balance it, we’d have to cut all non-defense discretionary spending: goodbye education, energy, commerce, labor, agriculture, housing departments and, oh yes, justice, EPA, health and so on... Cutting non-defense discretionary spending by 5% saves $30 billion dollars (just b billion)—about 40 days of US Treasury debt interest payments. 5% sounds good but it doesn’t do much. That’s also a kind of Wile E. Coyote response to a Roadrunner deficit.

Business Owners in Favor of Immigration

From a pragmatic and data-driven perspective:

• 7 million job openings nationwide
• 6 million unemployed nationwide
• 4.6 million part-time workers that want full-time jobs
• 1.6 marginally 'attached' unemployed (i.e. gave up on looking for work, most of them for reasons like school, family responsibilities, etc.)
• 7 million/(162 million employed+7 million unfilled jobs) = 4% labor pool gap
• Labor pool expansion for the next 10 years is less than 1%; beyond is projected to be 0.5%

In one state, there are 142,000 unfilled job openings. More than 50,000 people are leaving the labor market each year and in the most recent years only 7,500 have entered the labor pool. Based on this, that state could have 180,000 unfilled jobs next year, and then 220,000 the year after. Business owners in this state should be worried...and get very creative to attract more workers from the other states!

The trend can't continue. One friend mentions that for his IT department for a large corporation, he basically has an "H-1B cruise ship pull into the dock every year" so he has enough staff. (H-1B visas are granted for specialty vocations.) Some metal fabrication shops have started to request H-1B status for welders and others.

Even if we could get the 6 million people in the right place with the right skills, we'd still have a shortfall. Now we have to get full-time work for the part-timers and that's 2.3 million equivalent. The numbers do add up if we ignore assumptions about geography, mobility, aptitudes, learning curves, moving people from educational opportunities, taking care of family members, etc. Even if we can accommodate those assumptions, the gap will continue to grow....unless there's another Great Recession (2007-2009)...and who wants that?

By the way, many economists suggest that economic growth from 1950-1970 was because we didn't have global competition (i.e. most of the other industrial nations were adversely impacted by WWII) and the growth of consumerism to 'feed' the Baby Boomers. Then from 1970-1990, economic growth was stimulated by Baby Boomer's entry into the labor market and significant experiential gains, and the birth of technological productivity. In order to get back to sustained 2+% GDP growth, we need more workers.

So if we don't have labor market growth--and Baby Boomers are retiring faster than babies are being born--we may not have economic growth...and then we may have more business closings during another recession, fewer job openings...and the numbers will add up again. As a business owner, I'm sure my peers don't want to see this happen. Let's get some smart immigration policies to attract more people to fill our jobs.