Is the recession over yet?

“Be thankful we’re not getting all the government we’re paying for.” — Will Rogers

Statisticians say the recession ended mid-2009, four and a half years ago. But what do you think? Does it feel like the recession ended or does it feel like we are still in a recession? In a recent poll, 74% said we are still in a recession.

It’s no wonder most people feel that the recession never ended. Employment is miserable. GDP growth is pathetic. Median family income is down for four straight years. Almost 50 million Americans live below the federal poverty line. A record 47 million people are on food stamps. One pundit declared that “More people in the United States are poor, unemployed, underemployed, looking for work, disgusted and quit looking for work, on food stamps, and on disability than anytime in our history.”

But the December jobs report says that unemployment dropped from 7.0% down to 6.7%. Doesn’t that show that the economy is improving? Well, no. Almost all of the reaction, other than from hopelessly partisan hacks, says that the report is bad news. E.g. CNN described it as “weakest job growth in years”, USAToday referred to it as “unexpectedly weak jobs report”. Many reported that there were “only” or “just” 74,000 new jobs, the worst in almost a year. (UPDATE: The January Jobs Report is better but “is another disappointing jobs report”. “Job growth remains weak,” “disappoints again”.)

Not so well known is that jobs have to increase by about 150,000 every month just to keep up with the increase in population. Since 2009, when the recession supposedly ended, the civilian population age 16 and above has grown from 236 million to 246 million. Meanwhile, the number who were employed grew from 140 million to 144 million. In other words, of the 10 million who entered the working age population, only 4 million found a job.

Compare the current “recovery” with two others. From 1983 to 1987, population grew by almost 9 million; jobs by almost 12 million. From 1993 to 1997, population grew by a bit over 8 million, jobs a bit over 9 million. Those were strong recoveries – employment grew even faster than population. In the eleven recoveries since they started collecting statistics in 1948, the current recovery is by far the weakest and slowest.

US News magazine has a fascinating chart from the Federal Reserve of St. Louis. It shows both the unemployment rate and the EMployment rate from 1948 through 2013. They show the data for employment and unemployment separately because the two are calculated differently. But for more than 60 years, covering 10 recessions, employment and unemployment are mirror images of each other. When employment goes up, unemployment goes down and vice versa.

This time is different. For the first time in the history of these employment statistics, employment is NOT moving up. By the government calculations, unemployment has improved but employment as a percentage of the population has held steady for four years at a level much worse than we have seen for 30 years.

employment to population

But how can unemployment go down without employment going up? If you stop being unemployed doesn’t that mean you are employed? Well, no. Many people are not counted as either employed or unemployed; they are counted as “Not in labor force”. If you have been unemployed for so long that you give up looking, then you stop being counted as unemployed, and are instead counted as no longer in the labor force.

A record high 92 million people are counted as no longer in the labor force, an increase of 10 million in just 4 years. Some people will say that it is because baby boomers are retiring. That’s a nice theory but the numbers say otherwise. Those aged 55 and above have actually seen their employment numbers grow by 6 million people. It is the younger workers from 16-54 who have lost jobs – 8 million jobs.

In the four years of the current “recovery” the number of Millennials working full-time has decreased every year. The number living at home with their parents has grown every year. This is a human tragedy.

On top of all the ongoing poor employment numbers, the non-partisan Congressional Budget Office (CBO) recently estimated that ObamaCare will cost 2.3 million jobs by 2021. Apologists quickly countered that it would not be because people lost their jobs; rather it would be because people decided not to work. “When Americans quit looking for work because they conclude not working beats working, America faces a significant problem” says a white paper from Express Employment Professionals.

Some say that were are in a “New normal”. Many of us – I hope most of us – do not believe in a “fate that will fall on us no matter what we do.” For most of its existence, the United States has been the freest, most prosperous nation on earth. It is long established that freedom and prosperity go hand in hand; more freedom produces greater prosperity.

Sadly, the U.S. has moved away from freedom to a more and more intrusive government. The Index of Economic Freedom reported just last month that “The U.S. is the only country to have recorded a loss of economic freedom each of the past seven years.” Hmm, could that explain the awful employment?

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What Is Seen and What Is Not Seen

“Suppose you were an idiot, and suppose you were a member of Congress; but I repeat myself.” — Mark Twain

The great French economist Frederic Bastiat observed that “In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

The same is true in the sphere of public policy. The bad economist or the thoughtless politician (but I repeat myself) sees only the direct effect of a law; he doesn’t foresee the indirect effects. In many cases the politician may consider only the short-term effects that might help him win the next election; he may not consider at all the long-term effects.

Bastiat noted that “it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa.” So when a politician urges a great new solution to some problem – or typically, the same old ineffective solution to a problem – the long-term result very often is more harm than good.

One such example was alcohol Prohibition almost 100 years ago. The problem of alcohol may have been bad, but Prohibition made the problem much worse, to the point that Prohibition was later repealed. Another example was a luxury tax on yachts to “soak the rich”. Even a mediocre economist or a slightly thoughtful politician could have foreseen the disaster it turned out to be. The tax collected virtually nothing from the rich but did send many blue collar boat builders to the unemployment line. Two years later Congress repealed the law.

With the greatest intentions of reducing poverty, politicians have enacted policies that, in the short-term, help people survive one month until the next government check, but the unseen long-term effect is to trap people in poverty, sometimes for generations. If we truly care about helping people – and I think most of us do – then wouldn’t it be better to find long-term solutions that help people escape poverty?

As long ago as the 1980s, better economists and more thoughtful politicians saw the indirect effects of the welfare system – it “fostered a permanent underclass dependent on government handouts.” In 1996, a Republican Congress and Democrat President Clinton passed welfare reform with the goal of reducing the dependency trap and helping people escape poverty. Ten years later, The New Republic, a liberal magazine, looked back and editorialized that the reform “worked much as its designers had hoped [foreseen].” Since then, less thoughtful politicians seeing only the easily visible effects of welfare, and not seeing the long-term consequences, have undone most of the successful reform.

Our disability system likewise helps disabled people survive month-to-month but traps them in poverty. Wouldn’t it be better to find long-term solutions, using some amazing modern technology to help them overcome their disabilities, become productive, and no longer trapped in poverty?

Some short-sighted politicians want to extend the length of unemployment benefits beyond 26 months, but the long-term effect can be permanent unemployment. Studies have found that someone unemployed for more than six months has very little chance of ever getting a job.

Other bad economists and thoughtless politicians suggest raising the minimum wage. The immediate effect would be to slightly raise the pay for a small number of people – but cause others to lose their jobs. The long-term consequence would be to destroy many more entry-level jobs, making it harder and harder for teenagers to enter the work force.

When was the last time you saw a full-service gas station? That used to be a good first job for many young kids. Washing dishes was another good first job. Kids learned the self-discipline of showing up on time every time. While on the job they often picked up skills from the auto mechanics or cooks around them. But as the minimum wage rose, machines replaced those jobs. If it continues to rise, we will see machines taking orders for fast food, flipping burgers, and delivering the goods. The long-term effect of raising the minimum wage is disastrous for millions of young people.

Some politicians saw ObamaCare as a good idea; they did not foresee the terrible consequences. Today, some people think we will see good effects if we adopt the ObamaCare expansion of Medicaid. Not only do they fail to see the indirect, long-term terrible effects, they don’t even see the bad effects that have already occurred elsewhere. To put it simply, Medicaid is an inefficient, incredibly expensive program that provides even worse health outcomes than for people who are uninsured. Expanding it would cost even more than now predicted and would lead to much higher taxes.

To achieve better results – better economy, more good jobs, higher pay, less poverty, lower cost health care – we need to see not just the immediate effects of a policy, but to foresee the long-term effects.