At This Rate, It Will Take 28 Years To Get Everyone Back To Work
From a jobs perspective, the economy treaded water in February. We didn't drown in unemployment, but nor did we manage to swim closer to the prosperity shore. It was a "blah" month, in the midst of the worst economic recovery in American history.
Full-time-equivalent* (FTE) jobs increased by 147,000, thanks mostly to a large decline in the number of part-time workers. This was enough to move the nation 45,000 FTE jobs closer to full employment. While this was better than average for a month in President Obama's so-called "economic recovery" (America is 2.2 million FTE jobs farther away from full employment now than it was in June 2009), it's not great. At this rate, it would take us almost 28 years to get everyone back to work.
It was extremely significant that labor force participation continued to move up during February, after its big surge in January. This confirmed that allowing extended unemployment benefits to expire in late December was the right thing to do.
Progressives predicted that limiting unemployment benefits would cause people to drop out of the labor force, but the exact opposite occurred. It turns out that people respond to incentives. Who knew?
February's employment numbers also lent support to the theory that the Federal Reserve's quantitative easing produces the opposite effect of what the Fed intends and expects. The Fed increased the size of the monetary base by eight times as much in February as it did in January ($102.3 billion vs. $12.7 billion), and the rise in FTE jobs slowed from 678,000 to 147,000.
The financial markets appear to have figured out that quantitative easing has been a bad thing for the economy. The stock market has continued to make new highs in spite of (really, because of) the Fed's determination to "taper."
OK, so as of February 2014, America had 2.0 million fewer FTE jobs than it did in November 2007. Meanwhile, our working age population has grown by 13.9 million. During these 75 months, Labor force participation has plunged by three full percentage points. This amounts to 7.4 million Americans giving up on being self-supporting. What are our two great political parties offering to get our economy moving again?
President Obama delivered his plan, in the form of his FY2015 budget. Here is a quote from Obama's "Budget Message" that summarizes his approach:
"But there is clearly much more we can and should do to invest in areas like infrastructure, innovation, and education that will create jobs, economic growth, and opportunity."
When Obama (or any other progressive) uses the word "we," he is not referring to "We, the People," he is referring to "We the federal government." The essence of the progressive approach is to transfer more and more money to unelected, unaccountable "experts" in the federal bureaucracy. The presumption is that these experts will deploy this capital to produce economic returns superior to those that the private markets could manage if people were allowed to keep and invest their own money.
In short, the Obama approach is, "More Amtracks! More Solyndras!"
As George Gilder explained in his brilliant and important 2013 book, Knowledge and Power, the progressive approach cannot work. Progressive programs take power (money is a form of power) away from the people with the knowledge required to make effective use of it. Governments invariably deploy resources to serve political ends, not the interests of ordinary citizens.
The progressive road leads to Venezuela (which may be why progressives are so sympathetic to socialist dictators).
OK, progressivism won't work. So, what are conservatives offering? Thus far, mostly clueless confusion.
Congressman Dave Camp, the Chairman of the House Ways and Means committee, unveiled his tax reform plan. The idea that our Byzantine tax code could be "simplified" by a plan that runs 979 pages is questionable. However, the Camp plan's fatal flaw is that it is not strongly "pro-growth" (and may not, on balance, be pro-growth at all).
If we look at the Camp plan through the lens of Knowledge and Power, we see that it would do little to help foster the next generation of Apples and Googles. Entrepreneurs need a simple, stable tax code, and one that allows them to reinvest all of their profits in growth. This would provide the fastest route to full employment, because most incremental high-paying jobs come from new companies that are growing fast.
The Camp tax plan looks like the result of a three-year battle among big-company lobbyists, which is basically what it is. It is apparently "dead on arrival," and it should be.
When and if Republicans are ready to stop being "the Stupid Party," they will get behind the FairTax (which is a national sales tax). Because it does not tax savings and investment at all, the FairTax would produce the best alignment of knowledge (which resides in the minds of entrepreneurs scattered throughout the country) and power (capital).
The FairTax (coupled with a stable dollar) would deliver eye-popping rates of real economic growth. This combination would get America to full employment much faster than most people would believe possible.
For their part, FairTax advocates must realize that pro-growth tax reform cannot and should not be "revenue neutral," as scored by the CBO. Their proposed 23% FairTax rate is much too high. On a present value basis, a 15% tax rate would provide the federal government with more than enough revenue for any constitutional purpose.
There were some positive vibes from conservatives this week. In his speech to CPAC, Senator Ted Cruz laid out a ten-point plan for national revival. Most of it was on target, both economically and politically.
Crucially, Cruz devoted one of his ten points to the dollar. He said:
"We need to audit the Federal Reserve. Unaccountable power in Washington, debasing our currency, driving up the cost of food and gas and the basic stuff of life, is hurting Americans who are struggling across this country. I'll tell you what else it's doing, it's fueling the abuse of power of Petro-Tyrants like Putin."
Unfortunately, auditing the Fed is not enough. Under Janet Yellen, the Fed is operating with no rules at all. From a Knowledge and Power perspective, this produces so much "noise" in the communication channel (our system of market prices) that vital economic signals are being distorted and corrupted. This leads to, well, exactly what we have seen for the past 13 years-the slowest real economic growth in American history.
If we are going to have fast economic growth and full employment, we need what Gilder calls "a low entropy channel." This will require that Fed monetary operations be based upon rules. Accordingly, Republican candidates must not only criticize the Federal Reserve, and support "auditing the Fed", but also back Congressman Kevin Brady's "Centennial Monetary Commission Act." America needs fundamental monetary reform, and the Fed is not likely to reform itself.
The one place that Senator Cruz went off the rails of sound economic policy was in his call for "...a strong balanced budget amendment." As George Gilder points out in Knowledge and Power, whether you are a company or a nation, assets matter much more than liabilities.
Ronald Reagan did not pull America out of stagnation and despair in the 1980s by balancing the budget. He did it by getting the economy growing rapidly. This produced a massive increase in the value of the federal government's principle asset-its share of the present value of future GDP. This, in turn, made Reagan's deficits irrelevant. Interest rates fell during Reagan's presidency, despite "record" budget shortfalls.
While calls for a balanced budget amendment might play well in Republican primaries, they will be political poison in general elections. In the general election, candidates calling for a balanced federal budget will be cornered into explaining how they propose to perform surgery (spending cuts) without anesthesia (strong economic growth, which will require cutting taxes).
Surgery without anesthesia has never been popular with patients. Nor would be large cuts in the federal safety net, until fast economic growth is providing most people with the opportunity to earn wage income to replace the withdrawn federal support.
The economy has now been so bad for so long that our elites have accepted quasi-depression as the "new normal." The Democrats are now offering ideas that amount to "economic hospice care."
For example, Democrat Senator Elizabeth Warren has introduced a bill that would bar employers from conducting credit checks on job applicants. All this use of government coercion could possibly accomplish is to reallocate jobs from people with good credit to people with bad credit. And, of course, there is President Obama's strident call for a $10.10/hour minimum wage, which would give some workers a raise, but would cost others their jobs.
Meanwhile, in general, are Republicans continuing to validate their label, "the Stupid Party," by focusing on deficits, rather than upon economic growth.
America is tired of treading water on the jobs front. It needs Republican candidates that will step forward with big, pro-growth ideas. Memo to Republican candidates: read Knowledge and Power. Then come out for a stable dollar, the FairTax, and a return to regulatory sanity.
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*FTE jobs = full-time jobs + 0.5 part-time jobs
