Economic Failure By Design, Not By Accident!

As we come into yet another election cycle, the spin on unemployment numbers will be touted by all incumbents but the percentage of unemployed is not the real story.  Recently we were told that the national unemployment records hit a low of 5.9%.  However, what we are not hearing is that the labor force non-participation ratio for 16 years and older rose to 92.6 million that are no longer employed or seeking employment! According to the Census Bureau there are 316,128,839 (2013 estimate) people currently living in the United States meaning that nearly 1/3 of the total population is not in the work force.  People 16 and younger make up about 20% of the total population.  A large portion of that 92.6 million is in the female population.  55,553,000 women 16 years and older did not participate in the labor force in September, according to data from the Bureau of Labor Statistics (BLS).  The number of women not in the labor force increased from 55,345,000 in August to 55,553,000 in September, an increase of 208,000.

Perhaps even more telling is when the employment statistics are broken down by age groups we see a drop in participation in the labor force for most age groups under the age of 55 according to date from the BLS (www.bls.gov/emp/ep_table_303.htm).  Labor participation for 65 and older in 1992 was 13.2%….in 2012 that number rose to 18.5%.  In other words, if it weren’t for the increase in labor force participation by 65 and older participants, labor participation numbers overall would be lower than the current 92.6 million.

The fact is that more of our young people are not in the work force today, not simply unemployed, but not seeking employment.  Each year its getting worse.  Meanwhile, more of elderly are staying in the workforce or going back in to the workforce.  Perhaps that says a lot about the work ethic of that generation.

Looking at a ten year window the total population increased by 6.3 million people while people not in the labor force went from 69.6 million to 90.4 million…an increase of  20.8 million.  If these trends continue, in the next 10 years we could see more people not in the labor force than in it for people 16 years of age and older.  That in the most simple terms is unsustainable.

None of this is good news for the people regardless of the unemployment numbers which have been artificially manipulated to spin a positive look at a very dismal labor environment that’s getting worse, not better.  With less people in the workforce when you cancel out statistics for people not actively seeking a job, 5.6% is not simply lying to the American Public, its an attempt to keep a very dangerous truth from them.  We are setting a course for an inevitable economic failure unless things change dramatically in the very near future.

The expanding tax and regulate mentality of our government at all levels has contributed greatly to the problem.  While we have those screaming for an increase in the minimum wage, those trends haven’t solved anything.  Minimum Wage in 1974 was $2.00 an hour and the poverty rate was 11.2% according to census data.  Today the minimum wage is now $7.25  while poverty is over 16%.  While on the surface that looks like a $5.25 increase. Minimum wage in 1974 once adjusted for inflation compared to current minimum wage goes from $6.37 in 1974 to an adjusted $4.87 or a decrease of $1.50.  Increasing minimum wage didn’t make things better for workers, it made it worse.    From 2010 to 2012 the number of people in poverty went from 49 million to 49.7 million even though the report from Congress on their economic programs had promised that poverty would drop to 46.2 million through their expansion of social programs.  They missed the mark to the negative by 3.5 million.   The expansion of the social programs under this administration was an abysmal failure.   Those social program expansions are then levied on a shrinking labor force participation ratio.   The governments solution is to then raise taxes on those in the workforce creating more inflation and declining income for those workers.  When the social programs are more attractive than remaining in the workforce, more people will leave the workforce.

The manufacturing work force has been on a decline in the United States in spite of all the attempts to spin a different story.  The devil, as they say, is in the details.  It gets worse when you look at it comparatively with other places in the world.  US manufacturing as a percentage of GDP declined from 27 percent in 1950 to 23 percent in 1970 to 14 percent in 2000 to 11 percent in 2009. While manufacturing as a share of GDP has also declined in Germany and Japan, both countries have retained relatively larger manufacturing sectors at 17 and 21 percent, respectively. The contribution of manufacturing to per capita GDP is also higher in Germany  and Japan than in the United States. The most shocking, but under-emphasized, fact about global manufacturing is that Germany’s share of global merchandise exports is actually higher than America’s (9 percent vs. 8.5 percent in 2009), despite having an economy just one-quarter of the size.  In 2009, Germany and Japan had large manufacturing trade surpluses ($290 and $220 billion, respectively) while the United States had a massive manufacturing trade deficit ($322 billion).   (Report: World Trade Organization – 2011. International Trade and Tariff Data.)

As we shift from a less manufacturing based economy to a larger service based economy we can see the economic impact.  Rather than striking a balance between manufacturing and service jobs, an over-reliance on service jobs makes us dependent on manufacturing elsewhere to sustain a large portion of those service jobs.  When those service jobs are through the public sector government jobs resources are taken from the private sector to provide for the public sector.

The variance between federal increases and state cuts tells a more dramatic story.  Since Obama took office, 636,000 state and local jobs have been cut. In 2011 alone, 113,000 jobs were cut in local schools, 68,000 jobs were cut in local government administration, and 78,000 jobs were cut in state government administration, according to a 2012 Commerce Department report.  Labor Department statistics show that the federal government , not counting the postal service, has grown by 143,000 employees during Obama’s tenure.  That doesn’t tell the whole story though.

“In 2012,” Hall and Greene wrote in a recent report for George Mason University’s Mercatus Center, “public-sector employment made up more than 16 percent of the U.S. labor market.” That in itself is bad enough; but as the men observed, “Direct government employment fails to capture the full impact of government spending on state labor markets.”

 

To determine that “full impact,” Hall and Greene estimated the number of jobs in each state that are funded by federal contract dollars and added them to the number of actual public employees in that state. When they did that, they found that public-sector employment grew by almost 3.5 million jobs to a national average of 19.2 percent of the workforce. In other words, nearly one-fifth of all workers in the United States are employed either directly or indirectly by the government.

These may be jobs but they are jobs that need to be sustained through taxes levied on the remaining 80% of the workforce.  That 80% is often with wages and benefits that pale in comparison to their public sector counterparts.  Again this is not a solution but a contributing factor to the problems in any future economic recovery.  It also demonstrates a clear shift in policy away from State and Local Government controls to a more dominant role of the Federal Government in controlling the states and individuals in those states through more aggressive and harmful policies to individual wealth and prosperity.   While political screaming for increases in the minimum wage is appealing to minimum wage workers, few realize the cost of such increases where workers may see a temporary income increase but inflation eats away those increases at a greater rate than any income increases they may temporarily realize.  It also ignores the negative impact of available jobs in the private sector.

While private sector jobs decline and public sector jobs increase, we are also seeing a growth in non-profit related service jobs.  In a recent study by Nonprofit HR solutions, a human-resources consulting firm, and the Improve Group, a consultancy whose clients include charities. 580 nonprofit organizations were surveyed.  Health nonprofits, followed by environment and animal-welfare groups, were most likely to report plans to hire.  We’re not talking about things we used to think about when we talked about non-profits.  According to this report Religion and Human Service non-profits are more likely to see cuts as we see a shift away from the traditional concept of non-profit.   The data compiled showed that a large portion of the new jobs would not be related to providing services but would be related to fundraising efforts.  Much of that fundraising effort will be translated into lobbying revenue.  Much of that lobbying revenue will then be translated into policy that is having a negative impact on private sector job creation.

According to the Tax Foundation, a middle-class taxpayer’s income is subject to a 25 percent federal income tax. Then there is the federal Social Security and Medicare payroll tax of 13.3 percent in 2012—5.65 percent of that is removed from the employee’s paycheck, and the remaining 7.65 percent is paid by the employer. (In reality, the employee pays the entire 13.3 percent, because the employer’s portion of the tax does not affect the cost of labor: The employer would pay the employee 7.65 percent more if there were no employer’s portion of the payroll tax.) So the 25 percent federal income tax plus 13.3 Social Security and Medicare payroll taxes equals 38.3 percent going to federal taxes in 2012.

Then there are the state taxes.  The average state’s income tax rate for the middle-class taxpayer is 4.82 percent, which brings the total to 43.12 percent in federal and state taxes.  And it’s going higher, thanks to the nearly $500 billion in tax increases for 2013 that some have called Taxmageddon. In January of this year, the federal income tax rate for middle-class taxpayers was scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent. This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 cents on every dollar earned.

Printing more money is not a solution.  Printing money artificially creates inflation because it devalues the dollar.  In fact, nothing that our government is doing is helping the economy.  As Ronald Reagan said “Government is not the solution to the problem….Government is the problem.”

With a larger percentage of young people not working during an age group where a work ethic is created, we are creating a trend. At the same time, the expansion of the economic social network that has turned a safety net into a hammock, we are just doing more to damage that creation of a real work ethic.  We don’t need an increase in the minimum wage.  What we need is to bring back that balance between private and public sector jobs with a stronger emphasis on manufacturing jobs balanced by the service and non-profit job sectors.  We also need to see lower taxation and fewer regulations with stronger accountability to those who deliberately violate environmental standards rather than punishing the entire industry for the actions of a few.

The Hammock has to go.  Yes we need a limited safety net but that’s not what we have.  We have a larger society that is shifting towards permanent paid vacations paid for by a shrinking base that can’t afford to take one.   We’re seeing lucrative pension programs for the public sector while the private sector is either unable to retire or is forced back in to the work force unable to enjoy the retirement they worked for to provide for the retirement of others.  That safety net needs to be a transition back into the work force but that can not happen under the current economic policies of our government because we are crippling private sector jobs.

Perhaps what we really need is for the government and, in many cases, the corporate business sectors that control the media, to stop lying to us.  The American People have demonstrated an astounding resiliency in difficult economic times when they know the truth.  When the government gets out of the way and allows the American People to do what we did best, we can fix the problems of our economy but that’s not going to happen through the IRS or the Fed or any other of this federal stimulus packages or programs.

There is much talk about smaller vs. limited government.  Smaller Government advocates often ignore the growing bureaucracies and focus only on shrinking the legislative body.  That’s not really the problem.  Most of these federal and state Departments, Agencies and Commissions violate our Constitutions both Federal and State.  That’s the portion of government that needs to be shrunk and that’s really what is meant by a limited government.  We need a government restricted by the rule of law of the respective Constitutions and have them get out of the businesses they have no business being in.     A government truly limited by their own Constitutions will become a smaller Government when it comes to the powers of the Departments, Agencies and Commissions.  That begins be removing their regulatory authority, something that is only supposed to reside in our legislative bodies.

Shrinking the size of our legislative bodies will only put more powers in the hands of the few and that will create a need to grow the bureaucracies for administrative purposes.  Less legislators means less people representing larger numbers of people in their districts that can easily be gerrymandered for the purposes of creating incumbency reigns that would rival aristocracy.  Remember, legislatively, the smallest form of government is a dictatorship.  That dictatorship is maintained through a tightly selected administrative force of people working behind the scenes to make sure that dictatorship remains in place.  It holds on to that power by keeping the people dependent in servitude to those administrative powers.  This is what our country is becoming,  The problem is our government was not designed to have an administrative branch with the powers to tax through fees and penalties or the powers to legislate through regulations.

The shift in our economy is one where we see a growing dependency on government for everything that requires greater amounts of revenue from a shrinking number of people.  This is a trend that can be followed for the past 50 years and there have been more than enough warning signs during that time period to demonstrate what they are doing.  Yet the mere fact that they keep on doing it should demonstrate to us that this is by design not by accident.

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