Jobs Report Drives a Stake Through Unemployment Benefits

Hopefully, Friday's "Employment Situation" report from the Bureau of Labor Statistics (BLS) will drive a stake through the heart of the Democrats' push to revive extended unemployment insurance benefits. The 0.39 percentage point increase in labor force participation since extended benefits expired in December is the largest seen for any calendar quarter since 2Q1984. And, the increase in total employment (Household Survey) during the first quarter of 2014 was the biggest quarterly advance in 14 years.

These two results directly contradicted the expectations of Keynesian economists, who predicted that the end of extended unemployment benefits would slow job growth (because of lower consumer spending), and induce jobless people to exit the labor force.

On the other hand, the BLS numbers lend support to supply-side economics, which postulates, "Whatever you tax, you get less of, and whatever you subsidize, you get more of." There is no way to get around the fact that providing 99 weeks of unemployment benefits amounts to paying people not to work. And, as supply-siders predicted, when the jobless benefits were cut back, a lot of people went out and found jobs.

Unemployed youth
Unemployed youth (Photo credit: Senate Democrats)

Keynesians love "stimulus," both fiscal and monetary. They don't seem to notice that, as "stimulus" has declined, job growth has accelerated. The increase in federal debt held by the public, which is a proxy for fiscal stimulus, declined by 30.4% from 4Q2013 to 1Q2014. And, at the same time, monetary stimulus, in the form of the growth of the monetary base, fell by 24.3%. And yet, the quarterly increase in full-time-equivalent* (FTE) jobs more than tripled.

Now, it's not time to start singing "Happy Days Are Here Again." After almost five years of "economic recovery," the economy is still 1.8 million FTE jobs short of recovering all of the employment lost since November 2007. In the meantime, America's working age population has increased by 14.1 million.

Fifty-seven months into our Obama/Bernanke/Yellen stimulus-soaked economic recovery, we are still 557,000 FTE jobs farther away from full employment than we were when the recession officially ended. And, this is the case despite (or, if you are a supply-sider, partly because of) fiscal and monetary "stimulus" totaling $6.6 trillion. Right now, our total distance from full employment is a yawning chasm: 14.9 million FTE jobs.

Despite the uptick in labor force participation since the termination of extended unemployment benefits, the Obama years have been very discouraging to potential workers. Labor force participation has fallen by 2.6 percentage points since Bush 43 left office. This is equivalent to 6.5 million Americans giving up on the hope of being self-supporting.

The decline in the "headline" (U-3) unemployment rate from 9.5% to 6.7% since the start of the economic recovery has been pure illusion, an artifact of falling labor force participation. Adjusted to the labor force participation of December 2008, the unemployment rate actually rose, from 9.7% in June 2009 to 10.4% last month.

Our jobs problem stems from slow economic growth, and our slow economic growth stems from bad government policies. America has no shortage of ideas, capital, or people that could be put to work, if the policy environment were favorable for growth. Unfortunately, at this moment, seven months before the midterm elections, neither political party is offering a credible program for economic expansion.

The American people don't look to the Democratic Party for economic growth. This is good, because the Democrats aren't offering it. Growth isn't their "thing." In fact, a major constituency of the Democratic Party believes that economic growth is bad, because it harms the environment.

The Democrats are naturally the party of income redistribution, which is something that only makes sense to do in order to buy time, while waiting for someone to come along with a workable plan for growth.

Today's Democrats are playing their redistributionist role to some extent, by pushing for things like extended unemployment benefits, a higher minimum wage, and federal-government-funded universal preschool programs.

However, since Bill Clinton left office, the Democratic Party has been completely taken over by progressives. Progressives' real agenda is simply to centralize money, power, and control in Washington (at least until they figure out a way to move all of these things to the U.N.).

Transferring power to Washington separates power (and, money is a form of power) from the knowledge required to use that power constructively. As George Gilder explains in his brilliant 2013 book, Knowledge and Power, doing this is very detrimental to economic growth.

The Republican Party is naturally the party of economic growth, but, since Ronald Reagan left the scene, it has degenerated into the party of clueless confusion. House Budget Committee Chairman Paul Ryan's recently released FY2015 federal budget plan, ironically called "The Path to Prosperity," pays lip service to economic growth, but doesn't even bother to give any GDP numbers. All of Ryan's tables and graphs focus on spending, deficits, and debt.

Tellingly, Ryan's plan does not mention monetary policy at all, despite the fact that the Federal Reserve's improvisational, rules-free, 100% discretionary monetary policy is America's (and probably, the world's) number one impediment to robust economic growth.

Unstable money is deadly to growth, because it corrupts the price signals by which the national and global divisions of labor are coordinated. Companies won't invest if they can't trust price relationships to be "real." In Gilder's terminology, Janet Yellen's dollar provides a "high-noise, high-entropy channel," when what the economy needs is a "low-noise, low-entropy channel."

The jobs market did get a small boost from the expiration of extended unemployment benefits. Ironically, this did not happen because the Republicans understood the economics involved, but only because they didn't want to spend the money required to continue these benefits.

A real economic recovery, one worthy of the name, will have to await much larger policy changes in the areas of money, taxes, and regulations. Right now, it's not clear where the needed reforms will come from. Neither political party seems to have leaders that understand the overwhelming importance of economic growth, and how to produce it.

*FTE jobs = full-time jobs + 0.5 part-time jobs