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.

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.

Less freedom, worse economy

The U.S. has dropped even lower in the Index of Economic Freedom, published annually by the Heritage Foundation and the Wall Street Journal. “The U.S. is the only country to have recorded a loss of economic freedom each of the past seven years.” Since 2006, the U.S. has lost six points, has dropped out of the top 10, and has slipped from “Free” to “Mostly Free”.

It should surprise nobody that our economy is in bad shape. Economic freedom correlates closely with prosperity, lifespan, and happiness. We have terrible unemployment, millions have given up even looking for a job, median family income drops year after year.
Lots more interesting info at the link.
 

Scott Walker: stand on conservative principles

In a WSJ op-ed, Gov. Scott Walker says that the way he won the center, even including many Obama supporters, was by showing “the courage to stand on principle”. Against enormous pressure, he stood up for conservative principles.

The way Republicans can win those in the middle is not by abandoning their principles. To the contrary, the courage to stand on principle is what these voters respect. The way to win the center is to lead.

That’s why those arguing that conservatives have to “moderate” their views if they want to appeal to the country are so wrong. If our principles were the problem, then why are so many Republican governors winning elections by campaigning on them? Since Barack Obama took office in 2009, the GOP has gone from controlling both the legislature and governor’s mansion in nine states to 23 states today. Not one sitting Republican governor has lost a general election since 2007.

Republicans did not win those races by running from principles. They won by applying principles in ways that are relevant to the lives of citizens.

… Republicans focus on improving education, caring for the poor, reforming government, lowering taxes, fixing entitlements, reducing dependency, improving health care, and creating jobs and opportunity for the unemployed.

Republicans need to do more than simply say no to Mr. Obama and his party’s big-government agenda. They can offer Americans positive solutions for the nation’s challenges—to reduce dependency, and create hope, opportunity, and upward mobility for all citizens. They need to make not just the economic case for conservative reforms but the moral case as well—showing how conservative policies and ideas will make America not only a more prosperous society but a more just and fair one as well.

Too many people in politics today spend their time trying not to lose instead of trying to do the right thing. They would better serve the country by worrying more about the next generation than the next election. The irony is that politicians who spend more time worrying about the next generation than about the next election often tend to win the next election—because voters are starved for leadership.

The greatest country in history

“Politics is the business of getting power and privilege without possessing merit.” — P.J. O’Rourke

The historian John Steele Gordon observes that the United States is the most influential country in history and that the reason is our economy. In his book, An Empire of Wealth, he declares that ours is “an empire of economic success and of the ideas and practices that fostered that success.”

Gordon describes the rise of the American economy as an “epic powered by uncountable millions [of people] pursuing their self-interests within the rule of law, which is the essence of liberty.”

Liberty has been a hallmark of our country for most of 400 years. Many of the early settlers came for religious freedom. Others “came to pursue their own ideas of happiness … with less interference than anywhere else.” The voyage was perilous; the New World sometimes more so. Many died at sea; many others died within a few years. But they took those risks for the sake of liberty.

In our Declaration of Independence the signers pledged their lives, their fortunes, and their sacred honor to support the idea that all men had the unalienable right to “Life, Liberty, and the pursuit of Happiness.” Eleven years later, some of those same men signed the Constitution to “secure the blessings of Liberty”.

A century later French sculptor Frederic Bartholdi created the Statue of Liberty as a gift to the United States from the people of France. Do you know that a similar, though much smaller, Statue of Freedom tops the U.S. Capitol Dome?

The point of all this history is that Liberty, as a word and as an idea, has been the heart and soul of our country from the beginning. (Homework: on what U.S. coin is the word “Liberty”?)

Albert Einstein declared that “Everything that is really great and inspiring is created by the individual who can labor in freedom.” Most of the world’s great technology was created in the United States. And with just 6% of the world’s population, the U.S. has won 42% of the Noble Prizes.

We became the greatest country on earth because ordinary people had the freedom to do extraordinary things. People such as Thomas Edison, Henry Ford, and Steve Jobs started from humble beginnings and created whole new industries.

Some may say that our success was an accident of our geography and our natural resources. But how then do they explain the economic success of Hong Kong? It is but a small island with zero resources. Yet its per capita income is among the highest in the world. Not coincidentally it is ranked highest in the world for economic freedom.

No. Prosperity is not a result of natural resources – or perhaps it is. The most valuable resource for any country is the human mind. And the United States “unleashed the energy and individual genius of man to a greater extent than has ever been done before. Freedom and the dignity of the individual have been more available and assured here than in any other place on Earth.”

Every year, think tanks around the world rank the various countries for their economic freedom, personal freedom, political freedom, etc. One such ranking is the Index of Economic Freedom. It measures ten components of economic freedom such as freedom from corruption, fiscal freedom, labor freedom, and trade freedom. After averaging the ten component scores to produce an overall score from 0 to 100, it groups the countries as Free, Mostly Free, down to Repressed.

Years of study have shown that more economic freedom corresponds to higher per capita income, stronger growth, less poverty, and a cleaner environment. Other studies have shown that freedom also corresponds to more happiness and longer life spans.

Prior to the fall of the Berlin Wall more than 20 years ago, Germany was two distinct countries: West Germany and East Germany. One was free and prosperous; the other suffered tyranny and poverty. When East Germany was freed from the tyranny of Communism and became part of a free united Germany, it quickly became prosperous.

Today, we can look at the very prosperous South Korea, which is “moderately free” and the literally starving North Korea, which is “repressed”. Some may think of China as being a great country but it is ranked “mostly unfree”. Its per capita income is only one-quarter of Taiwan’s, ranked “mostly free”.

So, where does the United States rank in the index? Our overall score has dropped to just 76, #10 in the world. We aren’t even the most free in North America; Canada has taken that spot. Five years ago we were rated “Free”, now just “Mostly Free”. The U.S. is one of only three countries in the world that have dropped for five straight years, a total loss of more than 5 points.

Predictably, we have less prosperity – the rich have gotten richer, the middle class poorer – we have low growth and more people on the edge of poverty. For the first time in history the U.S. has dropped out of the top 10 on the Legatum Institute’s prosperity index.

The only good news is that people realize that we are headed in the wrong direction. By more than 2:1 margins, polls show that we are on the wrong track. The cure is to restore the economic freedom that made us the greatest country on earth.

Born American, but in the wrong place

People with a mission to save the earth want the earth to seem worse than it is so their mission will look more important. — P.J. O’Rourke

One of my favorite true stories is about a family who escaped Communist Hungary and immigrated to the United States. They had suffered first under the Nazis and then under the Communists. The father had seen his own father sent to a Communist gulag for the great crime of owning a small American flag.

The beginning of the Hungarian revolution in 1956 gave the family some hope that tyranny would finally be overthrown. But when the Soviets crushed the revolution just two weeks later, the father determined it was finally time to leave. The parents first decided to ask their children if they agreed. The son, Peter, responded, “With my father I am willing to go to hell.” Later he recounted, “My father informed me that our destination was not ‘hell’ – we were already there – but someplace rather its opposite: America.”

“Why are we going to America?” Peter asked. His father answered, “Because, son, we were born Americans, but in the wrong place.” That phrase, “born Americans, but in the wrong place” has always stuck in my mind.

America is not just a place; it is an idea. As Harry Truman said, “Being an American is more than a matter of where you or your parents came from. It is a belief that all men are created free and equal.” Truman was echoing the words of Lincoln who believed that the statement in the Declaration of Independence, “We hold these truths to be self-evident, that all men are created equal,” is the principle “that links the hearts of patriotic and liberty-loving men together, that will link those patriotic hearts as long as the love of freedom exists in the minds of men throughout the world.”

For most of 200 years – indeed for most of 400 years – people all over the world have known that America was the land of freedom, born on the idea that all men were created equal, and that all have a natural right to “life, liberty, and the pursuit of happiness.”

When the Schramm family escaped to Austria they were given temporary asylum while various embassies interviewed them for permanent asylum. The man from the German embassy extolled the virtues of their welfare state. The Schramms would have an apartment, a car, and a guaranteed monthly income. William Schramm declined the German’s offer. He wanted the blessings of liberty in America.

The Schramms did make it to America – on Christmas Eve, 1956. After processing in New Jersey, they settled in California, where both parents immediately went to work doing manual labor. In two years, they had saved enough to open a small restaurant. The entire family worked at the restaurant, they thrived, and a few years later moved to a larger restaurant.

Like many Americans, the Schramm family started with nothing, worked hard, took advantage of the opportunities that freedom gave them, and they prospered. Son Peter loved to read; he studied, and eventually became a Professor of History, ironically teaching native-born Americans about America. He explains:

“I tell them that they are among the fortunate of the earth, among the blessed of all times and places. I tell them not only that their country is the most powerful and the most prosperous nation on earth, but also that it is the freest and the most just. Then I tell them how and why this is so. I teach the principles from which these blessings of liberty flow.”

Dr. Schramm’s words were written in 2007. Are we still the most prosperous nation? Millions of people have given up looking for a job. The labor force participation rate is the lowest since 1979. Poverty is the worst since the mid-1960s. Median family income is down for four straight years; the rich are richer and the poor are poorer. GDP growth is a paltry 1.7%. This is the worst recovery in 70 years.

Not coincidentally, the United States’ rank in the Index of Economic Freedom has dropped every year since 2006. We have fallen from “Free” to “Mostly Free”. Less freedom produces less prosperity, lower life expectancy, less happiness, and fewer human rights.

Income mobility has also worsened. Throughout our history, there are countless stories of Americans moving from rags to riches. Ordinary people had the freedom to do extraordinary things. People like Henry Ford, the Wright brothers, and Steve Jobs started from humble beginnings and created entire industries .

Today, millions of kids are trapped in schools that are so corrupt and ineffective that half the children drop out before they graduate and half those who do graduate are functionally illiterate. They will never get a decent job or a shot at the American dream. Millions of other kids and adults are trapped in an entitlement system that keeps them on the edge of poverty. If they try to improve themselves, to learn skills, work longer, they lose benefits and end up worse off.

In the coming months we will talk about how good policies will lead to greater prosperity and greater opportunities for all. And we’ll talk about how bad policies are destroying jobs, keeping people poor, and killing any hope that they might do better.