Right Proven Wrong: Lack of Consumer Demand Not Regulations Causing Slow Growth

Last updated on February 7th, 2013 at 03:07 pm

The Philly Fed came out this morning with their report on manufacturing and it has turned south. Get ready for the Republican talking points trying to spin this to President Obama’s policies. Unfortunately for them, the facts don’t weigh heavily in their favor.

According to the Philly Fed report, manufacturers in the mid Atlantic are reluctant to hire because nobody is buying their stuff.

To get more stories like this, subscribe to our newsletter The Daily.

In the business survey, over 51% of businesses say lack of growth in sales is restraining their hiring, while taxes and regulations are in the middle.

In a Wall Street journal report, it stated, “U.S. factories stepped up production in April. The Federal Reserve’s Industrial Production Index — which measures the output of factories, mines and utilities — rose 1.1% from March.

Manufacturing production climbed 0.6% after falling in March, led by cars, and furniture and business equipment. Factories are operating at a high capacity but unemployment and weak wage growth continue to weigh on the U.S. recovery.”

The conservative will tell you that we need to reduce taxes of course, right?

Well, in a study I did for my recent article over at USAprogressive, I showed how North Dakota and South Dakota have complete opposite tax structures.

“Let’s now take a look at a state with no corporate or income taxes, South Dakota. Their GDP growth from 1997 -2010 was an astonishing 64%. Just to their North, North Dakota has a progressive tax structure.

Their income tax varies from 1.55% to 3.99% and their corporate tax rates start at 1.7% and top out at 5.2% while their GDP growth is equal to South Dakota’s at 64%.

Back in 2001 the tax rates were 3%- 10.5% for North Dakota and still ZERO for South Dakota.”

In the conservative economic theory, South Dakota should be sucking all the jobs out of North Dakota, right? That isn’t the case at all. Both states have realized incredible growth of 64% in GDP over 13 years.

This small study shows, that taxes are real irrelevant in the increase or decrease of economic growth. What we need is higher taxes, across the board in order to pay for increased spending so these companies will hire.

That is the main problem businesses are citing in the survey above, so let’s give them what they want, consumer demand through government spending. They will hire more people and eventually increase consumer demand without the help of the government.