Government Intervention Is Not the Solution

The article in the Wall Street Journal, Opinion section on January 9, 2015, “Still Room for Growth” highlights the improvements in the job market but concludes “All of which is to say that for all the economic momentum of the last nine months, there is still a long way to go to get back to the growth of the mid-2000s, much less of the previous two decades. Every policy in Congress and the states should still be measured by how much it adds to growth so more Americans can get a real pay raise.”  The conclusion that there is a long way to go is correct but the implication that government policies are the answer belies the problem that these policies are most often the cause.

The reduction in the unemployment rate to 5.8% uses the government’s U-3 value.  This shows unemployment in a more favorable light as it discounts people who no longer receive unemployment pay.  In other words, if you do not have a job and are not getting unemployment pay then you simply are not counted as part of the workforce.  As such, a smaller workforce translates to a lower unemployment rate. Alternatively, using the government’s U-6 value for unemployment that counts unemployed as unemployed reveals the unemployment rate about 11%.

This higher number is the “real” unemployment rate because, unlike the past, when the U-3 unemployment dropped workforce participation (the percent of the available workforce working) increased, but now when the unemployment U-3 rate drops the workforce participation essential remains unchanged.  Currently the workforce participation rate is the lowest since 1978. This means that the economy is barely creating enough jobs to cover the people entering the workforce let alone to pare down the backlog of folk unemployed.

With that said, the culprit is the government and its policies.  The collective assault of more taxes, regulations and welfare has created a perfect storm of lower business investment and individual dependency.  Currently almost half the population receives some form of government support.  Large corporations have some $2 trillion of cash off-shore because to repatriation would trigger a 35% tax.  As such, a solution would be a return to lower tax rates and free markets.  This environment existed in the 1980s and the GDP growth then was twice as it has been since 2009 when government intervention and welfare went on steroids.  True prosperity lies in the hands of people with the freedom to choose their futures from the dignity of earning a living and retaining the fruits of their labors.