Is the recession over yet? – II

“What is the use of living, if it be not to strive for noble causes and to make this muddled world a better place for those who will live in it after we are gone?” — Winston Churchill

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.”

If those words look familiar it is because I first wrote them three months ago. In that column, the focus was on the worst employment picture in more than 30 years. Three recent pieces of economic news make this a good time to look more broadly at the economy.

1) On April 22, the New York Times reported that the U.S. no longer has the highest Median Family Income in the world. Canada is now #1.
2) April 30, the headline news was that in the first quarter of 2014, the U.S. economy grew at an almost non-existent rate of 0.1%.
3) That same day other headlines stated that China would soon pass the U.S. as the world’s largest economy.

Our economy stinks and we will have more such headlines if we don’t fix it. So, how do we fix it? The first step is to replace all the politicians who don’t even realize there is a problem, who do the same wrong things year after year expecting different results.

For decades, probably for more than a century, the U.S. has had the richest middle class in the world. Not just the richest middle class, but also the richest lower class, the richest upper class, and even the richest poor people. Those in the bottom 10% were much better off than the bottom 10% in any other country.

U.S. median family income is now down for five years in a row. In Canada, median family income is up for four of the last five years. Is it pure coincidence that Canada has been governed by Conservatives in recent years, the U.S. by Progressives?

The Index of Economic Freedom is an annual scoring of some 180 nations by ten measures of economic freedom. As the Index states, “The ideals of economic freedom are strongly associated with healthier societies, cleaner environments, greater per capita wealth, human development, democracy, and poverty elimination.”

The U.S. was rated economically “free” in 2006. Since then, its freedom score has dropped 6 points, it has fallen out of the top 10 to now #12 and is ranked only “mostly free”. The U.S. has lost economic freedom for seven years in a row, particularly in the areas of property rights, and freedom from corruption.

Conversely, Canada has increased its freedom score by more than 10 points over the last 20 years. It is currently ranked #6, and is rated “free”.

Hmm, is there a pattern here? The U.S. loses economic freedom seven years in a row and median family income goes down for five years in a row. Canada increases its economic freedom and median family income goes up four of the last five years. It now has the world’s highest median family income.

GDP growth in this so-called “recovery” has been pathetic. For four years it has been around 1.5% to 2%. That is the slowest by far of all the recoveries in 65 years. The Federal Reserve Bank of Minneapolis has a nice interactive chart of all postwar recoveries. The current recovery amounts to merely an 11.1% increase in GDP over the almost five years since the recovery began. Many of the previous recoveries had double or almost triple that growth. This recovery is barely half the average of the ten previous recoveries.

Imagine if we had had as much as average growth in the last five years. Investor’s Business Daily estimates that we would now have $1.3 trillion higher income. That is about $10,000 higher per household. That is the cost of bad economic policies.

Apologists for the Obama “recovery” say that the recession was especially severe. Historically, the more severe the recession, the stronger the recovery. It should have been easy to produce better than average numbers. They now say that financial recessions take longer to recover. But that’s not what they said back in 2009 and into 2010. Back then they forecast a strong recovery. It was only after their economic plans failed that they started spouting the “financial recession” excuse.

The Democrat Party would be wise to heed the words of one of its Presidential candidates from some 20 years ago, the late Senator Paul Tsongas, who said, “You cannot redistribute wealth that you never created. You cannot be pro-jobs and anti-business at the same time. You cannot love employment and hate employers.”

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Did we win the war?

Always do right. This will gratify some people and astonish the rest. — Mark Twain

This year is the 50th anniversary of the War on Poverty (WOP). In January 1964, during his State of the Union speech, President Lyndon Johnson declared a “War on Poverty”. “Our aim is not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it.” In August of that year, Johnson signed the Economic Opportunity Act of 1964, which stated that it was the policy of the United States to eliminate poverty. “The United States can achieve its full economic and social potential as a nation only if every individual has the opportunity to contribute to the full extent of his capabilities and to participate in the workings of our society.”

Even before the WOP, poverty rates were falling steadily. From 1940 to 1960 the poverty rate for black families dropped from 87% to 47%, then in the 60s it dropped another 17%. In 1950 the overall poverty rate was 30%. By 1956 that had dropped to 25%. By the time of LBJ’s announcement the rate had dropped to 19%.

A few years after the WOP legislation was passed, poverty dropped to 12%. Supporters cheered that the law was working, but how much of that drop was due to the new law and how much was a continuation of a long-term trend going back to the 1940s and 50s?

Since then, now amounting to some 45 years, the poverty rate has bounced up and down between 12% and 15%. The average for the last two decades is higher than when LBJ left office. For the first time in about 50 years, the poverty rate is 15% for three years in a row. A record high 50 million Americans live in poverty. 

We can do better. We should do better.

What we have been doing for most of 50 years has not worked. The War on Poverty has not achieved its stated goals: it has not cured, prevented, or eliminated poverty. The goals were laudable but we should judge the law by its results, not its goals. The result after 50 years is an increase in poverty, not a decrease. People are trapped in poverty, not freed from it.

LBJ’s goal was to help people become prosperous and self-sufficient. Instead, people have become dependent on government, surviving from one benefit check to the next. The Act stated as a goal that “every individual has the opportunity to contribute to the full extent of his capabilities.” 50 million Americans are not contributing; the programs’ perverse incentives punish people who try to work.

Some say the WOP has been a success as measured by the great number of people receiving assistance. Wouldn’t it be better – better for poor people themselves – to measure success by the number of people who have been lifted out of poverty and no longer need assistance?

We all know Einstein’s definition of insanity: “doing the same thing over and over again and expecting different results.” For most of 50 years we have been doing the same thing year after year and the result has been to trap more and more people in poverty.

The myriad of welfare programs reward people for being poor and penalize those who try to move out of poverty and up the income ladder. Someone who works harder, takes a second job, learns more skills, might earn $10,000 more but lose $15,000 of benefits. Hence, many say “I can’t afford to take that job. I’d lose my benefits!” With perverse incentives like these, it is no wonder that we have more people in poverty and fewer people making the effort to better themselves.

New York Times’ columnist Nicholas Kristof recognized the problem: “This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire.”

As a caring society we want to help the vulnerable. But do we want to trap them into a lifetime of dependency on government, where they are punished for trying to better themselves? Is it good for society to have millions of people unable to contribute their skills and energy? Is it good for the recipients themselves to live in poverty their entire lives with no hope of ever becoming self-sufficient and moving upward? 

For Kristof, “a tentative lesson from the field is that while we need safety nets, the focus should be instead on creating opportunity — and, still more difficult, on creating an environment that leads people to seize opportunities.”

Our social safety net all too often acts as a trap net. It traps people at the edge of poverty and prevents them from moving up the ladder of success. A true safety net is rarely used. People create opportunities to reach their work site above the safety net. In the unlucky event that they fall to the net, they climb back up and continue their work.

Let’s think more about creating ladders or stairways or ramps to help people escape poverty and reach for their dreams and less about nets that support them and trap them at the edge of poverty with no hope of rising higher.

Poll: jobs, economy, government most important problems

From Gallup:

Three issues — jobs, economy, and government — have been at the top of the “most important problem” list since the beginning of the year.

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Americans are about equally likely to name unemployment and dissatisfaction with government as the most important problems facing the U.S., with the economy in general following closely behind. These issues have ranked at the top of the most important problem list since the beginning of 2014.

Nearly one in five Americans still cite government itself as the nation’s top problem.

Independents name as their top four problems:
  • Dissatisfaction with government
  • Jobs
  • Economy in general
  • Poor healthcare

See the full poll here.

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.

Our Status Quo Governor

Manchester, NH – Gubernatorial Candidate Andrew Hemingway released the following statement in response to Governor Maggie Hassan’s State of the State Address:

“Governor Hassan successfully spoke for nearly an hour without mentioning one accomplishment of her administration. Using the words “solution and innovative” repeatedly does not unto itself mean you have achieved or even proposed an innovative solution. The people of New Hampshire are smarter than that.

“Governor Hassan gave a lot of lip service to the business community, yet every policy she proposed would harm the very community she is praising. Study after study has proven that a hike to the minimum wage harms exactly the people it is trying to help. Increasing the minimum wage causes jobs loss, it drives more people to welfare, it drives up state budgets and raises the cost of doing business. The people harmed the most? Minorities and women.”

“Where exactly are her solutions? She failed to even mention the serious problem with our healthcare situation here in New Hampshire, even though it is arguably one of the largest concerns of our citizens. 22,000 people were kicked off their insurance thanks to Hassan-supported Obamacare; 12 hospitals were removed from the network for anyone on the Exchange, or anyone with individual insurance from Anthem; Anthem is the ONLY provider approved for the Exchange. Where is her plan to bring more insurance providers into the state?”

“On education, Governor Hassan praised Common Core. This bureaucratic mess lowers existing state standards and replaces parents with bureaucrats. Common Core is not right for NH. We have increased our spending on education by over a billion dollars in the past decade; our enrollment is down and our education has not improved. Governor Hassan believes differently than me. She thinks more government control is the solution to everything, I think individual freedom is.”

“We very much are in need of certain transportation improvements for our roads and bridges. I agree with the Governor there. But she failed to tell us how we can pay for that. Just as she failed to tell us how we can pay for her expanded natural gas pipeline, or extending broadband internet. A good idea is only a good idea if you tell us how to make that idea a reality. Governor Hassan didn’t do that.

“Our Governor says absolutely nothing. She maintains the status quo, because as her record has shown, she has no solutions. This ‘do nothing’ leadership is doing nothing to improve things for students, patients or workers.” –Andrew Hemingway, Candidate for NH Governor

Great article by Rand Paul

One of Rand Paul’s strengths is that he connects well with his audiences. This article is addressed to college students but has a good message for all of us.

The federal government now attempts to micromanage American life at practically every level.

The government tells you what kind of lightbulbs you can buy, what kind of toilet can be in your home, how much water can come out of your showerhead. Privacy is seemingly an antiquated notion, with government snoops able to access third-party records, such as phone records, e-mails, financial records, and pretty much any other personal information they want, without a judge’s warrant.
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America has drifted away from the constitutional principles of limited government, separation of powers, and individual liberty.
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We need to do a better job of communicating why big government is the problem—why it is bad for the economy, freedom, and a restrained, yet strong, foreign policy.
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conservative solutions are tangible too. We’re not just saying no to more government. Our proposals will lead the way to more prosperity, more stable families, political decisions made at the local level, a dollar that holds up in a global marketplace, an education system that puts students and parents first, a vibrant culture supported by religious institutions, and opportunities for young people like you to grow and lead America into a renewed age of freedom.
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Our political opponents and the media like to portray conservatives as unconcerned about the poor, senior citizens, and minorities. Nothing could be further from the truth. But we need to do a better job of communicating the promise of conservatism, not simply the failures of liberalism. We advocate not for special privileges for “the rich” but rather for a flourishing economy that lifts everyone up, creating millions of jobs and lessening the burden of taxes and government regulation.

We need to shout to anyone who will listen, “More freedom and less government means more jobs, more wealth, and a better life for everyone.” Despite the trillions of taxpayer dollars spent on bailouts and “stimulus” plans over the past several years, the economy hasn’t fully recovered from the Great Recession.

One in six Americans lives in poverty, more than at any other time in the past several decades. This is unacceptable.
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Decentralization of power is the best policy. Government is more efficient, more just, and more personal when it is smaller and more local. By decentralizing government, we strengthen communities, allowing people to depend on and care for one another, rather than on some distant, incompetent bureaucracy masquerading as defender of the common good. This is a message we need to do a better job communicating.

Read the whole thing.

Poll: Record high number oppose ObamaCare

A record high number of registered voters (59%) oppose ObamaCare and a record low number (36%) favor it. Interestingly, the increase in opposition comes from Democrats and independents. 30% of Democrats, up from 22%, oppose the law. Among independents, 64% (up from 53%) oppose it.

Some apparent reasons for opposition to the law include the fact that majorities think the new law will increase their taxes (63 percent), increase their insurance costs (62 percent) and increase the federal deficit (56 percent).

Meanwhile, just one voter in five thinks Obamacare will increase the quality of their health care (19 percent).  More than twice as many expect the quality of their care to get worse (39 percent) and another 37 percent think it will stay the same.

  • By 42%-27% voters think that Obama’s policies have hurt, not helped, the economy
  • A whopping 74% feel as if the country is still in a recession
  • By 55%-30% they think cutting taxes and reducing regulations would help the economy
  • 55% vs 37% think that long-term unemployment benefits discourage people from trying to find work
  • A majority (52%) think the government should provide unemployment benefits for at most one year