What is the problem of unemployment? It’s a political issue, in a way, the biggest one of them all. What is it that makes unemployment below 5% an achievement, and unemployment above 5% a crisis? And why do the left and the right have such different approaches to that crisis?
5% unemployment has long been considered “effectively full employment” in the United States. At this rate, Americans feel, everybody who wants a job right now either has that job or is in the process of a willing, patient search for the right one.
There are always couple percent who are unemployed because they just don’t want to work, so they go between jobs as long as they can, and a couple percent who are in an intentional gap between jobs, taking a couple weeks off after leaving one and starting the next, or after being graduated from school and starting the first job. In a normal economy, there are millions of people in this circumstance at any given time.
But the clear and current political problem of unemployment is a very different issue – it’s the people who are looking for a job and can’t find one anywhere near their valuable abilities. The buyers and salesmen, engineers and plant managers, assembly line workers and foremen, who can’t get jobs because the number of Americans is increasing, but the number of those jobs are decreasing, as businesses close down, shrink to stay afloat, or move abroad to escape the vicious American assault on commerce that has been slowly building for a century but reached a crescendo under the Obama administration.
The immediate effect on the worker
This assault on commerce has vastly reduced the number of available jobs, so that people have been forced into terrible choices: take unemployment assistance as long as the government will hand it out (and then other forms of welfare as well)… or piece together a set of different, poorer-paying jobs in the hope that sixty hours a week will enable them to pay the bills that forty hours of a better job had previously covered… or give up on the career you’ve built, seeking some other more promising career and starting from scratch… or take early retirement (if available), giving up on the economy for good, even though it means one’s retirement years will be even longer and less enjoyable than one had planned and expected.
Some of this has always been a part of our economy, as specialties have moved abroad or disappeared with changing technologies and globalization. But at 5% unemployment, the way it used to be calculated, these are pockets in the economy, exceptions to a general upward trajectory for the vast majority of Americans.
As we have changed the way we count unemployment to be principally only those who qualify for government unemployment assistance, rather than all of the above groups of truly unemployed and underemployed, the numbers have become deceiving. We report a national rate today well over 8%, nearly a doubling of what economists consider full employment, but the real number, the one consistent with traditional reporting, has been fluctuating between 14 and 17% for the past three years. That’s a virtual tripling of the traditionally “acceptable” unemployment level, and it’s crippling the nation.
So we see politicians of the left treat it the same way they’ve always treated it. The left proposes unemployment insurance checks as usual, just more of them, and for longer duration. The left advocates for Obamacare because COBRA is expensive, and credit card forgiveness and utility support and free cellphones and internet service and food stamps, so that people aren’t stuck going without while their unemployment or underemployment drags on. The left proposes mortgage assistance to forestall foreclosure until the end of the crisis.
What both sides acknowledge is that some of this is necessary – not all, by any means, but some – but there is an aspect of this that the left fails to understand, and that the right recognizes a critical: that the left’s policies to deal with unemployment become self-perpetuating, that these very “solutions” actually prolong the crisis they claim to want to cure.
Two competing visions
The left sees the world as a static place, a pie to be sliced up. If some people are denied their slices, then that must mean, in their worldview, that others are taking larger slices… so government must step in, to take back a chunk of those larger slices and redistribute them to those who had been denied. Economists call it “the zero-sum game” – the idea that there is only so much to go around, so government must step in to reallocate it all. Government must be given full powers to do so, since this is its principle job.
The right, however, rightly sees the world as a dynamic place. In a proper economy – a growth economy – the pie is always expanding, so that there is always more for willing workers to enjoy, so that people willing to work hard, who make sensible choices, can prosper. Some at different rates, perhaps, with varying levels of success, but virtually everyone willing to try can move up from poverty to the middle class, maybe even up to wealth, in a well-focused career in a growth economy.
Our problem today is that we don’t have a growth economy. We have an economy shedding jobs, shedding companies, practically shedding whole industries. It is a period of prolonged contraction, and which has effects that the left seems incapable of grasping.
Instead of viewing the economy as some stagnant pie, think of it as a mountain lake, fed by multiple springs, the source of multiple rivers and streams. The springs of capitalism constantly add to the lake, while the rivers and streams of socialism drain it. We need the springs not just to grow the lake, but just to keep it at the same level, as the rivers and streams continuously draw it down. Recent decades have added new rivers, dug new streams flowing outwards from it – new government bureaucracies and programs, massive printing of currency and generation of loans, millions of new names added to the rolls of the Dole. And what have we done to help the lake supply all these tributaries? We have stopped up the springs, plugged the sources, so that our drains are rapidly shrinking the lake. If one or the other – the plugging of springs or the number of outbound rivers – isn’t quickly corrected, the time left for the American experiment will be measured not in centuries but in decades, or even in mere years.
The many effects of unemployment
Let’s consider what unemployment does. Oh, it’s obvious what it does to the individual suffering from it: it makes it harder to pay bills, makes it harder to support your family. It robs one’s career trajectory of the unbroken experience of which one had been so proud. It puts one at risk of foreclosure and bankruptcy. All bad things – nobody would minimize the issue from the individual’s perspective.
But the left – in its blindly singleminded focus on alleviating the suffering of the individual jobless person (and perhaps appealing for his vote) – fails to understand the problems that high unemployment cause to the economy at large. The left fails to recognize that – in the effort to temporarily alleviate this suffering – the left’s policies actually exacerbate the economy’s problems.
Housing: By tripling the unemployment percentage, ten percent of the public is unavailable to shop for and purchase new homes, sustaining the prices of housing. When people drop out of the housing market (unintentionally), it causes prices to keep dropping. The left worries about “finding a floor” and subsidizing mortgages, not comprehending that these government programs just make it worse by prolonging the joblessness that causes the home values to plummet.
Stimulus programs: By addressing unemployment through the issuance of stimulus checks of borrowed money – like Cash for Clunkers and the trillion-dollar 2009 ARRA “porkulus bill” – government adds to its long-term debt. The left thinks it will buy another few months of employment for the automakers or the road construction industry, but the damage that this increased debt causes is far more destructive and more lasting than any benefit that such spending can spur. It adds to our dependence on foreign investors, it removes capital from the pool available for private sector activity, it grows the government and therefore permanently necessitates ever-greater tax collections.
Banking “reforms:” By redesigning our mortgage processes, eviction systems, and foreclosure methods, again and again, we’ve made it harder for banks to get out from under a loan that goes bad. However well-intentioned this may have been, adding chains to the banking community was no way to increase home ownership. For every additional tightening on these processes, we give the banks more and more reason to be cautious. Caution is good, of course… but at a time when there’s so little employment security already, giving banks yet another reason to fear granting a mortgage is hardly a path to increased home sales. If we want more home sales, the only way is to have more employed people getting raises and promotions.
Obamacare: Among the many foolish reasons given for nationalizing our nation’s healthcare – wrecking the greatest healthcare system on earth – was the constant worry of the healthcare of the unemployed. Granted, if people get their health coverage from work, and then lose their jobs for a few weeks or months, this adds risk to the process, and the expense of COBRA coverage was a costly and imperfect solution. But Obamacare is the classic case of the cure being worse than the disease. Its numerous embedded taxes, massive increased costs, and incredible increased regulations (doubt this? the bill included funding for 16,000 new IRS agents to manage the funding paperwork alone) have combined to depress employment more than any other single program. Obamacare is the reason small companies stay small, the reason all companies fear growth, and the largest reason why many companies are waiting until next year to see whether to add personnel or reduce them. Every new hire now costs more – far more – to a company than beforehand. If you really want more private sector jobs to be created, why on earth would you create a regulation making those jobs be even more costly for every employer?
Corporate Taxes: The American business climate has suffered for years, as climbing federal and state taxes and red tape have developed their ever-greater stranglehold. But it’s also important to remember that the United States don’t exist in a vacuum; we must compare our economy with the economies of our trading partners and competitors across the seas. Dozens of other countries have signed free trade agreements with each other while Americans succumbed to union pressures to hold them back. Dozens of other countries have lowered their domestic tax burdens, specifically to participate in the world market of business location. Americans today have the highest federal income tax in the industrial world, effectively over 35%, higher even than notoriously overtaxed Japan and Europe.
Pension Plans: Every state, county, city and school district is suffering today, just as we individuals are, from the poor performance of investments over the past few years. Both public and private funds are in the same boat: the flailing economy has not produced the stock market returns necessary to grow retirees’ investment plans, neither for the individual nor for the government. Traditionally, individuals could usually survive this by postponing retirement a bit… but governments cannot. Governments have usually promised defined benefits to their retirees, and can neither meddle with their benefit schedules nor with their eligibility dates. The poor performance of these investments make virtually all governments have to make their payments from the general fund rather than from their underperforming investments. How can they? Only by raising taxes. And these tax hikes – caused by decades of mismanagement, not just the present disaster – speed up the downward spiral of their areas. Taxes rise, and employers flee, so there are ever more to be paid, and ever fewer able to support them.
Honestly, if you wanted to start a manufacturing business today, and could choose your location, would you really choose the United States, with its record taxes and over-regulation?
All these, and many many more, add up to create this destructive climate in which we find ourselves today. To make life easier for the unemployed, we cripple the businesses that we depend upon to hire them. To fund the non-working, we stretch the working even more, forcing them to shed ever more costs in an effort to survive. The left’s very approach for helping the jobless prolongs their condition, possibly permanently.
Encouraging the solution
The first thing to acknowledge is that government cannot “solve” the problem itself. If the problem is that private sector businesses aren’t hiring enough, then executive fiat and the jack boot of government cannot force them to hire.
But what the government can do is to recognize the problem, and stop contributing to it. The government can - and must - get out of the way!
The government has caused the private sector to contract, by sucking up investment dollars to fund an ever-growing bureaucracy and entitlement culture. The government has raised tax rates and fees, so many of them in so many ways, that it drives businesses out of existence or off our shores. Thoughtless, hamhanded decisions like the vicious closure of 3000 auto dealerships and the criminalization of normal manufactured goods like incandescent bulbs and high-yield showerheads terrify entrepreneurs out of starting a new business on these shores. If anything, they have the idea here, find investors here, and then build their plants in Asia.
There is only one solution, the solution of Goldwater and Reagan, of Friedman and Williams, of Laffer and Sowell. We must grow our way out of this death spiral by returning to the policies of economic growth.
We must cut tax rates to the bone, and make them permanent. No tax cut should ever be sunset. Give our business climate one of the lowest corporate income tax rates on earth – say, fifteen or seventeen percent – and watch our employers’ eyes perk up.
Repeal the excessive regulations of the past decade, the EPA and DoT rules, the outrage of Obamacare, the foolishness of Sarbanes Oxley and Dodd Frank, which have scared businesses out of expansion, and scared them right into the arms of Chinese, Indians, even Europeans. Repeal much of the Federal Register of recent years, and we will again see our economy grow. Shrink the most offensive of the agencies – EPA in particular – and watch the manufacturing sector leap back to life.
The beauty of it is this – as the economy grows again, companies hire, reducing the ranks of the unemployed. But it’s more than that. As these companies prosper, they pay more in taxes (yes, even at lower rates), enabling governments large and small to start paying their bills better again. As the stock market takes off again, state and local governments’ pension fund investments start to produce again, so that those governments can reduce their reliance on tax dollars to make up the difference.
Once we are back out of the death spiral and back in the upward spiral, instead of the losses building on themselves, we’ll see growth building on itself.
A successful business that hires another five people isn’t just helpful because it hires those five people, moving those five off the entitlement rolls and onto the taxpayer rolls. That successful business is also helpful because it needs more vendors to support its growth, so those vendors hire more people as well. And those vendors hire still more vendors, all of whom create ever more jobs, either directly or indirectly.
None of this is to say that it’s wrong to care about the unemployed… of course we should, we must… but it is to say – to shout, in fact! – that’s it’s wrong to view the unemployed as a single isolated problem to be cured. The unemployed are a symptom of a sicker business climate; the only way to cure the condition is to look beyond the individual jobless, and to do what it takes to spur job creation.
Because it’s not enough to get somebody off the street corner and back on a desk, or behind a counter, or on an assembly line. The right policy of government is to look beyond that job, and instead to focus on creating ever more and ever better opportunities for these workers.
The conservative looks not to this job but to the next one, and says “Yes, we want to get you back on the line today, but we want there to be a foreman job for you next year if you earn it. Yes, we want to get you back at the cashier stand or clerk desk today so you can earn a living again, but our long term goal for you is for a store manager position or department manager position to open up for you soon. We hope that someday, if you have the ability and drive, you can start your own manufacturing business, your own store, your own firm.”
The conservative knows that only a focus toward the end game is truly helpful, either to the state or to the individual.
This nation has already endured shamefully high levels of unemployment and underemployment; this four year term has shown that the Obama agenda can’t cure problems; it just makes them permanent.
Right now, the cure for our economy is just a bit more of the same medicine, but laser-focused in the right direction: the cure for our nation’s unemployment is for just a couple hundred more people to lose their jobs, as long as it’s the right ones - and all of these happen to live in and around Washington D.C.
The nation’s problems will be solved when Barack Obama and his staff, his cabinet and his czars, his undersecretaries and “special assistants,” are finally evicted from their tyrannical and destructive positions of power.
The ticket to ending joblessness is replacing the job destroyer with the job creator. That single act – the replacement of Barack Obama with Mitt Romney – may not do everything we need, but it will do more good with one single flick of a switch than any other action ever could.
November can’t come soon enough.
Copyright 2012 John F. Di Leo
John F. Di Leo is a Customs broker and international trade compliance lecturer. His columns appear roughly weekly in Illinois Review.
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