10 Truths About The US Economy

The strong growth of the US economy after the 2001 recession and 9/11 has surprised – and I suspect disappointed – European and Dem critics of the administration. They shouldn’t be surprised – most of their assumptions are myths.

The contradictions of the myths come from the data assembled here – published in late 2004, so there’s no excuse for ignorance.

1. Real earnings are up on the dot-com boom

Real earnings are higher now than at the height of the dot-com boom in 2000.

2. Unemployment is very low

(The peak) unemployment rate of 6.3 percent…following the 2001 recession (was) lower than the average unemployment rate for the 1980s and less than one point higher than the average unemployment rate for the 1990s.

3. The Bush tax cuts boosted investment

Business investment contracted at a 1.14 percent annualized rate over the 14 quarters prior to the 2003 tax cuts (then) grew at a 13.03 percent rate over the 3 quarters following the 2003 tax cuts (on business investment).

4. Insourcing is huge

…more than 5.4 million jobs in America are the result of insourcing—that is, they have been outsourced from abroad into the United States. Annually, these insourced jobs account for $307 billion in wages and salaries.

5. The US has a trade surplus in services, even allowing for outsourcing

The United States exports more business, technical, and professional services than it imports (and offshore outsourcing of service work is synonymous with importing those services). In 2003, the trade surplus for these services was $27.0 billion.

6. Lack of health insurance is transitory

Only 3.3 percent of all Americans went without some kind of health insurance for four or more years.

7. Poverty is transitory

Very few people—only about 2 percent of the total population—are chronically poor in America, as defined by living in poverty for four years or more.

8. The US “rich” are highly taxed

Households in the top income quintile provide one-third of all labor in the economy (and) pay 82.5 percent of total federal income taxes and two-thirds of federal taxes overall.

9. So real income inequality is very small

By the uncorrected Census numbers, the top 20 percent of earners, or top quintile, appear to have $14.20 of income for every $1 of income that the bottom 20 percent earn.

(But adding in benefits and subtracting taxes and correcting for household sizes and hours worked)… the income ratio between the top and bottom quintiles drops to $2.91 for every $1.

10. The Bush tax cuts held taxes at historical levels

The Bush tax cuts, even if made permanent, return the tax burden to its historical level as a proportion of the economy. Allowing the Bush tax cuts (to) expire would raise the tax burden to historically unprecedented levels.

So if Europeans just cut taxes and work harder, they’ll be able to pay for their redistributive entitlement programs!


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