Welcome to the Whatever Economy
Between 1900 and 1999, U.S. GDP expanded by 1,000%. Never in human history has a major economy expanded at such a rate for so long. At the end of the 20th century, the average American enjoyed ten times the standard of living as the person living in 1900. Nearly everyone owned a car (a promise Warren Harding had made in his 1920 campaign), and nearly everyone had cable TV, internet, and a cell phone besides. Life was good in 1999.
But will life be better in 2199?
According to the latest BLS report, U.S. productivity in the first decade of the 21st century dropped to a level just ahead of inflation. Since 2008, productivity has gone negative, an ominous sign for future living standards. The past five years have shown productivity gains stuck at or below 2%.
The most recent numbers show economic growth falling off a cliff. Manufacturing continues moving offshore, corporations are relocating abroad to avoid U.S. corporate taxes, and in 2014 small business startups fell to a 30-year low. It’s no coincidence that the absolute number of small businesses has been shrinking since 2009, just when Obama took office. Obama is killing entrepreneurship in America, just as he is driving American companies overseas. He also has created a workforce that is demoralized, with less productivity growth than any cohort since the Jimmy Carter recession of 1981.
June numbers showed a 5.3% unemployment rate, which sounds good until you look at how many Americans are working part-time and how many have dropped out altogether. Obama is the first president in postwar history under whom full-time employment has failed to reach new highs.
Sorry to disappoint my liberal friends, such as they are, but this is not George Bush’s fault. Under Obama, the labor participation rate fell to 37-year lows, and it remains below what it was when he took office – as of March 2015, it was 62.8% vs. 65.7% in January 2009.
What’s happened is the greatest productivity bust since the Great Depression. In less than seven years, Obama has transformed the labor market from a place where men and women worked hard and expected to work until they reached full retirement age to this: a workforce in which younger workers expect to spend just over two years in a position. That is hardly long enough to make a real contribution to a company or to society. It is one reason why productivity gains have declined since 2008.
What explains the willingness of younger workers to change jobs so frequently? The answer may be the withdrawal of moral hazard. With Obamacare and other benefits, there is less fear of quitting a job.
As Nancy Pelosi predicted in March 2012, Obamacare will “liberate” workers to quit their jobs and become “a photographer or a writer or a musician, whatever.” No need to worry about losing employer-sponsored health care – Obama has your back. Pelosi even thought that was a good thing. Like the world really needs more creative types. Meanwhile, I have trouble finding a plumber.
The net effect of fewer and less productive workers is less production, and the effect of less production is a lower standard of living. Greece is facing the consequences of a generation of unproductive or sham workers. The cost of labor in Greece, relative to production, is several times that in Germany. Greece faces a stern choice: restructure so as to become more productive, or face a significant cut in living standards. Next, it’s our turn.
Obama’s expansion of the welfare state has reduced the incentive to work. The solution is to repeal those negative incentives and to replace them with positive ones. The greatest positive incentive would be a reduction in the marginal tax rate.
With federal and state individual tax rates averaging close to 50%, not counting payroll taxes, sales taxes, property taxes, and death taxes claiming another 20% to 40%, there is little incentive for skilled workers to work harder or longer. Instead, the incentive is to stash as much cash as possible in tax-free and tax-deferred retirement accounts, earn a decent pension, and retire early. That’s just what 11.4 million workers have done (as of August 2014) since Obama took office.
The loss of those workers shows up in stagnant wages as well as in stalled productivity. Average wages, adjusted for inflation, have not increased since Obama took office. As of January 2014, median household income had fallen 4.6% since 2008. That’s not because greedy CEOs and Wall Street investors are stealing from workers. It’s because workers have less incentive to work. Every time a seasoned 50-year-old leaves the workforce and is replaced with an inexperienced 20-year-old, wages and productivity decline. That has happened 11 million times under this president.
The disincentives to work may be even greater among young college graduates. Many are dropping out even before they get started. According to a recent report, it seems that among Silicon Valley types, the creation of a free app that locates the nearest latte or arranges a late-night hookup is characterized as a productivity gain. Most of these “advances,” however, are directed toward expanding opportunities for leisure, not for productivity. Downloading a videogame or commenting on a friend’s latest dining experience may be an enjoyable diversion, but these create nothing of value for society. They are simply distractions from work or study. A society that puts most of its efforts into trivial diversions will have a hard time defending itself against its enemies when advanced weaponry and hardened soldiers are required.
On every visit to my local library, I see rows of young men sitting for hours at public computers. These men, in the prime of what should be their working years, are not searching for employment or studying to improve their minds; they are playing worthless videogames filled with brain-numbing violence and mindless action. These games, I assume, are the product of Silicon Valley or of some other tech center. I cannot see how they are making us better or more productive as a nation.
Unfortunately, this administration has shown no interest in creating the kind of incentives that might get these young men back to work. Instead, like Nancy Pelosi in her “whatever” comment, it celebrates indolence while it bashes the profit motive, attacks companies and individuals for their success, and teaches the young that wealth is a dirty word. Inevitably, young people believe it. Among the class of 2014, according to a respected national survey, the “opportunity for personal growth” ranked first among job attributes. “High starting salary” ranked toward the bottom, well below “friendly co-workers” and “ability to improve community.” That doesn’t sound like a very ambitious workforce.
The private sector has now become second to government and non-profits as the preferred career choice for graduating college seniors. Jobs that produce nothing aren’t going to raise the national standard of living, especially when many of those jobs result in more regulations and more enforcement. America doesn’t need more environmental inspectors or gender equality police. It needs more workers producing goods and services of real value.
Fifteen years into the 21st century, there is little evidence to suggest that future generations will be much better off than in the past. They may live longer due to advances in medical research, but will they live better? At this point, the answer is no, and the reason is government disincentives to work.
Jeffrey Folks is the author of many books on American politics and culture, including Heartland of the Imagination (2011).