The Great American Bubble
Here is a simple chart of the amount of taxes collected by the US federal government from 1960 to 2014. Along with the total gross federal taxes, the chart also shows the break up in terms of: income taxes (business, individual, estate & trust), employment tax, estate tax, gift tax, and excise tax. If you are wondering what all this has to do with a bubble, read on…
As you scan the plot, you will notice an astounding increase of about 3,270% ($92 billion to $3.1 trillion) in 54 years. The markers in the chart indicate the presidents from Obama all the way to Nixon, the two bubbles (housing and dot-com), and Nixon’s visit to China.
One interesting recent detail you can observe is how George W. Bush inherited the dot-com crisis, and Barack Obama the housing crisis. And under both, Bush and Obama, how the US economy turned around. In fact, under Obama the overall growth rate seems to have accelerated. While under Bush, the accelerated growth ran into the housing bubble. But overall, even with the two huge economic downturns, the net trend of the economy reflected here by taxes collected has been to keep on growing.
Now take a wider angle look at this tremendous growth and if you are wondering where did all this start and why? Then, we may have to step further back in time, all the way back to Richard Nixon in 1972. It was probably when Nixon visited China in 1972. This visit may have set the stage for the epic growth of the US economy fueled by China’s support role in manufacturing. Nixon even prophetically dubbed the visit “the week that changed the world.” This moment in US history, along with the other events during the mid 70's, like the easing of the cold war tensions and ending of the Vietnam war; may just have been the right sequence of events that put America and the rest of the world on an economic growth fast track.
Take a few more steps away from this chart and now look at it again. Does it make you wonder if the growth in federal taxes collected is not just an indirect indicator of the tremendous growth in economy, but potentially an indicator of a massive bubble in the making, one that has been building up for 57 years, a Great American Bubble. If this is indeed a gargantuan bubble, then it’s an ominous one, one that has been lurking. If the small punctures like the dot-com bubble and the housing bubble are any indicators, then disrupting the engines that fuel the Great American Bubble could bring about the greatest economic disaster the world has ever seen.
As the presidential torch passes on from Obama to Trump, the important question is, will the next president’s policies that meddle with the main cogs of the engine that powers the Great American Bubble cause small punctures like those of the dot-com or housing crisis or will it disrupt and collapse the great bubble? Whatever the actions of the 45th president maybe to make America great again, remember — the great bubble is an ugly beast, one of exorbitant consumption and environmental destruction, and meddle with it carefully, for it will not be a pretty end!
- Interactive chart of US gross federal taxes 1960 - 2014
- Data Source: IRS 2014 Data Book
- The sudden drop you see in the chart in 1976 is due to the fiscal year change (October to September)