Is This Real Growth?

 Financial FAQs

“Real gross domestic product (GDP) increased at an annual rate of 1.6 percent in the first quarter of 2026 (January, February, and March), according to the second estimate released today by the U.S. Bureau of Economic Analysis. Real GDP was revised down 0.4 percentage point from the advance estimate, primarily reflecting downward revisions to investment and consumer spending.” BEA.gov

FRED/Q1gdp

Economic growth this year is improving because corporations are making record profits—up 17 percent annually in Q1 2026 from an average 13 percent since the COVID-19 pandemic.

But it looks like much of the growth may be part of the tech bubble—such as massive overinvestments in chips and artificial intelligence (AI)—creating a bubble which by definition and past history will eventually deflate.

Why the sudden jump in corporate profits to 17 percent? It’s mostly from investing in the massive buildout of artificial intelligence centers and the infrastructure. How long can such GDP growth continue, especially if those future investments, such as in AI programs or the chips that power AI, may take years to turn a profit?

Republicans’ Big Beautiful Tax Cut Bill encouraged corporations to invest as much as possible this year because they could write it off in the same year, and those investments are generating serious profits in the buildout of AI data centers, for starters.

But the Biden administration’s $5trillion in investments to modernize the American economy—the CHIPS, Infrastructure, and Inflation Reduction Acts—are also contributing to the surge in growth.

Yet largely because of the Trump Administration’s mismanagement; even attempts to cancel or impede many of the Biden administration programs that would actually improve inflation, healthcare, environmental protection, and bring the manufacture of computer chips home; we are seeing those profits going into irrationally exuberant, overinvestment in future technologies with uncertain futures instead that is pushing major stocks and market indexes to record highs.

The announcements on the possibilities of AI are mind boggling. Zack Kass, Open AI pioneer and author of bestseller, The Next RENAISSANCE: AI and the Expansion of Human Potential, has said:

“If directed wisely, it will secure our needs, accelerate discoveries that serve human flourishing and unlike the products that commoditize our attention today, free us to invest in connections creativity and love.”

It will free whom, and what will they do then? It is causing massive layoffs at the likes of Amazon (30,000 employees to date) who hope that programs like Claude and ChatGPT can do much of the thinking and future planning for these corporations.

Consumers aren’t doing so well that actually make up most of the GDP growth equation. Their so-called Disposable Income (an economic term) declined to “slightly less than -0.1%” in April.

It resulted in a lowering of the personal savings rate to almost 2%, one-half of its more normal 3-4 percent rate in recent years. Consumers are stretched in other words; more than half of their incomes are now spent on the soaring costs of gasoline/energy products, household necessities, and food. This is another reason we may see slowing GDP growth ahead.

There is no question that AI has enormous potential for good, in what British economist JM Keynes made in a famous prediction in 1930, should there not be too many bumps in the promised road to a greater freedom from work:

“Thus for the first time since his creation man will be faced with his real, his permanent problem-how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.” JM Keynes

But Keynes said this in 1930. How long has it been since then?

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Republicans Don't Pay Their Bills

 Financial FAQs

“The new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent spending cuts or other tax increases, TCJA (Tax Cuts and Jobs Act) will raise federal debt and impose burdens on future generations. If it is financed with spending cuts or other tax increases, TCJA will, under the most plausible scenarios, end up making most households worse off than if it had not been enacted.” Brookings

How times have changed! Republicans during the Eisenhower era paid for the deficits their tax cuts caused. The Brookings Institution analysis of Donald Trump’s 2018 Tax Cut and Jobs Act has US households paying for it because it added some $4 trillion to our federal debt even “if it is financed with spending cuts or other tax increases.”

The 90 percent corporate tax rate and 92 percent maximum personal tax rate of the Eisenhower era paid for the “new hires, new equipment, and product research which are deductible from taxable earnings.”

In other words, the higher tax rates made corporations use their profits to finance their own growth, rather than pay Uncle Sam. Whereas today the TCJA tax cuts will mostly finance corporate stock buybacks.

And Trump wants to renew the TCJA when it expires this year, which the Congressional Budget Office says will add at least another $4 trillion to our national debt.

It doesn’t have to be this way. The Clinton/Gore government downsizing of the 1990s created four years of budget surpluses, because they negotiated with congress to make the cuts, because they were congressionally mandated programs.

“Unlike the current effort, the cutting didn't start until they had gone through a six-month study process and developed a blueprint of how to best reinvent the federal government,” said a recent Newsweek article on the subject. “Government agencies were brought into the process to determine the best ways that efficiencies could be realized. In fact, the effort was led by some 250 federal employees that remained on their agency payrolls.”

The federal workforce was reduced by close to 400,000 employees between 1993 and 2000, or about 17 percent of the total. The cuts made the government the smallest it had been since the Eisenhower administration, according to the Newsweek report.

Who do the Trump tax cuts benefit? Corporations and households in the top 5% — who earn more than $450,000 a year, roughly — are the “biggest winners.” They’d get over 45% of the benefits of extending the Tax Cuts and Jobs Act, according to a July 2024 analysis by the Urban-Brookings Tax Policy Center and would reduce federal tax revenues by $4.4 trillion by 2035.

So why would Republicans want to reduce federal revenues when we have a $36 trillion national budget deficit that is 120 percent of GDP?

It’s because Republicans don’t want to pay their bills rather than provide social services and environmental protection that would benefit all Americans. That’s their history from at least 1980 when President Reagan declared that “government was the problem” and immediately fired the federal air traffic controllers who were striking for higher pay and better working conditions.

We know how that turned out with the latest brouhaha over Musk’s slashing of the already understaffed FAA workforce that regulates airline travel.

President Eisenhower would have turned over in his grave, if he knew this would happen to the Republican Party.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen