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Worse than a recession

America faces deep economic and demographic challenges


Worse than a recession
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Americans everywhere seem to be asking the same question: “Are we entering into a recession?” Data show that the economy contracted for the first half of 2022 and then returned to modest growth in the second half of the year. That fits the technical definition of a recession. But the economy faces something worse than a mild six-month economic contraction. That something worse is that we are likely already in a prolonged period of stagflation.

As in the 1970s, a noxious policy mix of high government spending, financed by a combination of tax hikes and monetary debasement, led to high inflation and a pattern of alternating shallow recessions and weak recoveries. That is exactly what the economic and financial data are signaling now.

Back then, the nation was rescued by Reagan. He cut taxes, freed the economy from stifling regulation, and backed Fed Chairman Paul Volcker in the painful task of contracting the money supply to crush inflation. The recovery was spectacular.

But things are different this time, because the margins for error are much slimmer than they have ever been. Reagan faced a less difficult challenge than ours. When he took office, the national debt was only about 31 percent of GDP. Now it is 125 percent, and the Congressional Budget Office (CBO) just revised its ten-year debt outlook up an additional $2.5 trillion. When Reagan took the reins, federal annual deficits were about 2.5 percent of GDP. Last year that number was over 12 percent. At those prior debt levels, Reagan could cut taxes but not cut spending and still avoid a debt crisis, because we had much greater borrowing capacity. Yes, there was a lot of handwringing about the national debt, but at those debt levels and with the United States on a growth path, there really was nothing to worry about. Back then, the United States was a good credit risk.

But the country doesn’t look like such a good credit risk now. Let’s look at the U.S. budget situation shrunk down to family size. During the ’80s we were like a household headed by a middle-aged earner with good prospects that pulls in $100,000 per year with $31,000 in debt who is borrowing $2,500 a year. No problem.

The abortion abomination has deprived us of over 60 million people. That is a gaping hole, not just in our moral and social health, but in our economy.

But now we are like a family headed by a wage earner on the eve of retirement who earns $100,000 a year, has $125,000 in debt, and who has to borrow $12,000 each year to maintain the same standard of living. Not sustainable.

Demographics are key. When Reagan took office, there were 17 people of retirement age for every 100 not of retirement age. Now, that number is 26 per 100 and rising. Yes, tax cuts can improve incentives for workers, but there’s a limit to what growth incentives can do when there aren’t enough workers to take advantage of those incentives, plus the current political climate is towards raising taxes, not cutting them.

Americans are used to easier fixes. The government does something stupid, the electorate learns, then elects someone better, and America gets back to prosperity. But in the past, the structural issues were far more benign. The abortion abomination has deprived us of over 60 million people. That is a gaping hole, not just in our moral and social health, but in our economy. Everyone aborted since Roe would still be under 50 right now. We simply would not have a demographic crisis if those people were here. Some moral crimes are so great that they leave lasting tragic legacies.

Even the Congressional Budget Office knows that now. It recently released its dire long-term economic forecast. After an expected brief improvement early next year in labor participation, “The participation rate then begins to decline as the negative effects of the aging population begin.” And that has direct economic effects, as “…growth in the potential labor force is slower than in previous periods, largely because of the aging of the population.” The CBO doesn’t mention abortion, but the math is clear. We’re not in crisis because people age. People always age. We’re in crisis because those people did not replace themselves with younger people. That’s anti-natalism, including the culture of death.

Christians need to relearn our own pro-fertility, pro-thrift, pro-work heritage and then re-teach it to America. But it won’t be easy, and it won’t be quick.

Jerry Bowyer

Jerry Bowyer is the chief economist of Vident Financial, editor of Townhall Finance, editor of the business channel of The Christian Post, host of Meeting of Minds with Jerry Bowyer podcast, president of Bowyer Research, and author of The Maker Versus the Takers: What Jesus Really Said About Social Justice and Economics. He is also resident economist with Kingdom Advisors, serves on the Editorial Board of Salem Communications, and is senior fellow in financial economics at the Center for Cultural Leadership. Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of his seven children.

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