Europeanism

Obamanomics in Action

I begin with this dismal picture of GDP crawling along at bottom edge of the 99-percent confidence interval around the long-term trend:

Real GDP 1947-2014
Source for this and the following charts: Bureau of Economic Analysis, Current Dollar and “Real” Gross Domestic Product, March 27, 2015.

Here is a closer look at the state of affairs since World War II. Note the steady decline in the rate of growth — a decline that has been exacerbated by Obamanomics:

Year-over-year changes in real GDP

It should not surprise you to learn that we are in the midst of the weakest recovery of all post-war recoveries:

Annualized rate of real growth - bottom of recession to bottom of next recession
See this post for my definition of a recession.

Nor should you be surprised by the stickiness of unemployment, when it is measured correctly. The real unemployment rate is several percentage points above the nominal rate. For details, see “The Obama Effect: Disguised Unemployment.”

The sad but simple explanation for all of the bad economic news: Employers and employees remain discouraged because Europeanism has arrived in America and regime uncertainty persists. It all adds up to this: punish producers, reward non-producers, and stagnate.

And thus the real unemployment rate remains high. Officially, the unemployment rate stands at 5.5 percent, as of March 2015. Unofficially — but in reality — the unemployment rate stands at 12.0 percent. This real rate has remained almost unchanged since October 2009. And it is significantly higher than the real rate of 10.0 percent that Obama “inherited” from G.W. Bush in January 2009.

Employers and entrepreneurs remain loath to take the risk of expanding and starting businesses, given Obama’s penchant for regulating against success and taxing it when it is achieved. The job-killing effects of Obamacare will only worsen the situation. And, of course, taxing “the rich” is a sure way to hamper economic growth by stifling productive effort, innovation, and investment.

How can I say that the real unemployment rate is 12.0 percent, even though the official rate is only 5.5 percent? Easily. Just follow this trail of definitions, provided by the official purveyor of unemployment statistics, the Bureau of Labor Statistics:

Unemployed persons (Current Population Survey)
Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

Unemployment rate
The unemployment rate represents the number unemployed as a percent of the labor force.

Labor force (Current Population Survey)
The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

Labor force participation rate
The labor force as a percent of the civilian noninstitutional population.

Civilian noninstitutional population (Current Population Survey)
Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

In short, if you are 16 years of age and older, not confined to an institution or on active duty in the armed forces, but have not recently made specific efforts to find employment, you are not (officially) a member of the labor force. And if you are not (officially) a member of the labor force because you have given up looking for work, you are not (officially) unemployed — according to the BLS. Of course, you are really unemployed, but your unemployment is well disguised by the BLS’s contorted definition of unemployment.

What has happened is this: Since the first four months of 2000, when the labor-force participation rate peaked at 67.3 percent, it has declined to 62.7 percent:

Labor force participation rate
Source: See next graph.

Why the decline, which had came to a halt during G.W. Bush’s second term but resumed in late 2008? The economic slowdown in 2000 (coincident with the bursting of the dot-com bubble) can account for the decline from 2000 to 2004, as workers chose to withdraw from the labor force when faced with dimmer employment prospects. But what about the sharper decline that began near the end of Bush’s second term?

There we see not only the demoralizing effects of the Great Recession but also the growing allure of incentives to refrain from work, namely, extended unemployment benefits, the relaxation of welfare rules, the aggressive distribution of food stamps, and “free” healthcare” for an expanded Medicaid enrollment base and 20-somethings who live in their parents’ basements.* Need I add that both the prolongation of the Great Recession and the enticements to refrain from work are Obama’s doing? (That’s on the supply side. On the demand side, of course, there are the phony and even negative effects of “stimulus” spending, the chilling effects of regime uncertainty, which has persisted beyond the official end of the Great Recession, and the expansion of government spending.)

If the labor-force participation rate had remained at its peak of 67.3 percent, so that the disguised unemployed was no longer disguised, the official unemployment rate would have reached 13.1 percent in October 2009, as against the nominal peak of 10 percent. Further, instead of declining to the phony rate of 5.5 percent in March 2015, the official unemployment rate would stand at 12.0 percent.

In sum, the real unemployment rate was 3.1 percentage points above the nominal rate in October 2009; the real rate is now 6.5 percentage points above the nominal rate. The growing disparity between the real and nominal unemployment rates is evident in this graph:

Actual vs nominal unemployment rate
Derived from SeriesLNS12000000, Seasonally Adjusted Employment Level; SeriesLNS11000000, Seasonally Adjusted Civilian Labor Force Level; and Series LNS11300000, Seasonally Adjusted Civilian labor force participation rate. All are available at BLS, Labor Force Statistics from the Current Population Survey.

_________
* Contrary to some speculation, the labor-force participation rate is not declining because older workers are retiring earlier. The participation rate among workers 55 and older rose between 2002 and 2012. The decline is concentrated among workers under the age of 55, and especially workers in the 16-24 age bracket. (See this table at BLS.gov.) Why? My conjecture: The Great Recession caused a shakeout of marginal (low-skill) workers, many of whom simply dropped out of the labor market. And it became easier for them to drop out because, under Obamacare, many of them became eligible for Medicaid and many others enjoy prolonged coverage (until age 26) under their parents’ health plans. UPDATE 04/11/15: For more on this point, see Salim Furth, “In the Obama Economy, a Decline in Teen Workers” (The Daily Signal, April 11, 2015).

UPDATE 04/06/15: Stephen Moore offers excellent insights in “Why Are So Many Employers Unable to Fill Jobs?” (The Daily Signal, April 6, 2015).

*     *     *

Related posts:
The Laffer Curve, “Fiscal Responsibility,” and Economic Growth
The Causes of Economic Growth
Mr. Greenspan Doth Protest Too Much
A Short Course in Economics
Addendum to a Short Course in Economics
Fascism and the Future of America
The Indivisibility of Economic and Social Liberty
Rationing and Health Care
The Fed and Business Cycles
The Perils of Nannyism: The Case of Obamacare
More about the Perils of Obamacare
Health Care “Reform”: The Short of It
The Mega-Depression
As Goes Greece
Ricardian Equivalence Reconsidered
The Real Burden of Government
Toward a Risk-Free Economy
The Illusion of Prosperity and Stability
The “Forthcoming Financial Collapse”
I Want My Country Back
The Deficit Commission’s Deficit of Understanding
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid
The Stagnation Thesis
Taxing the Rich
More about Taxing the Rich
Understanding Hayek
Money, Credit, and Economic Fluctuations
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Say’s Law, Government, and Unemployment
Unemployment and Economic Growth
Regime Uncertainty and the Great Recession
Regulation as Wishful Thinking
The Real Multiplier
Don’t Just Stand There, “Do Something”
The Commandeered Economy
Stocks for the Long Run?
We Owe It to Ourselves
Stocks for the Long Run? (Part II)
In Defense of the 1%
Bonds for the Long Run?
The Real Multiplier (II)
Lay My (Regulatory) Burden Down
The Burden of Government
Economic Growth Since World War II
The Stock Market as a Leading Indicator of GDP
Government in Macroeconomic Perspective
Keynesianism: Upside-Down Economics in the Collectivist Cause
Is Taxation Slavery? (yes)
Taxes Matter
The Price of Government, Once More
Economic Horror Stories: The Great “Demancipation” and Economic Stagnation
Economics: A Survey (also here)
Why Are Interest Rates So Low?
Vulgar Keynesianism and Capitalism
Estimating the Rahn Curve: Or, How Government Spending Inhibits Economic Growth
America’s Financial Crisis Is Now
The Keynesian Multiplier: Phony Math
The True Multiplier
Some Inconvenient Facts about Income Inequality
Mass (Economic) Hysteria: Income Inequality and Related Themes
Income Inequality and Economic Growth
A Case for Redistribution, Not Made
McCloskey on Piketty
The Rahn Curve Revisited
The Slow-Motion Collapse of the Economy
Nature, Nurture, and Inequality
How to Eradicate the Welfare State, and How Not to Do It
Understanding Investment Bubbles

Signature

Obamanomics: A Report Card

THIS POST HAS BEEN UPDATED AND INCORPORATED INTO “OBAMANOMICS IN ACTION.”

This is a companion to “The Obama Effect: Disguised Unemployment.”

I begin with this dismal picture of GDP crawling along at bottom edge of the 99-percent confidence interval around the long-term trend:

Real GDP 1947q1-2014q1
Source for this and the following charts: Bureau of Economic Analysis, Current Dollar and “Real” Gross Domestic Product, April 30, 2014.

Here is a closer look at the state of affairs since World War II. Note the steady decline in the rate of growth — a decline that has been exacerbated by Obamanomics:

year-over-year change in real GDP 1948-2014

It should not surprise you to learn that we are in the midst of the weakest recovery of all post-war recoveries:

Annualized rate of real growth_bottom of recession to onset of next recession
See this post for my definition of a recession.

Nor should you be surprised by the stickiness of unemployment, when it is measured correctly. The real unemployment rate is several percentage points above the nominal rate. For details, see “The Obama Effect: Disguised Unemployment.”

The sad but simple explanation for all of the bad economic news: Employers and employees remain discouraged because Europeanism has arrived in America and regime uncertainty persists. It all adds up to this: punish producers, reward non-producers, and stagnate.

*     *     *

Related posts:
The Laffer Curve, “Fiscal Responsibility,” and Economic Growth
The Causes of Economic Growth
In the Long Run We Are All Poorer
A Short Course in Economics
Addendum to a Short Course in Economics
The Price of Government
The Price of Government Redux
The Mega-Depression
As Goes Greece
Ricardian Equivalence Reconsidered
The Real Burden of Government
The Illusion of Prosperity and Stability
Taxing the Rich
More about Taxing the Rich
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Say’s Law, Government, and Unemployment
Unemployment and Economic Growth
Regime Uncertainty and the Great Recession
Regulation as Wishful Thinking
The Real Multiplier
The Commandeered Economy
Stocks for the Long Run?
We Owe It to Ourselves
Stocks for the Long Run? (Part II)
In Defense of the 1%
Bonds for the Long Run?
The Real Multiplier (II)
Lay My (Regulatory) Burden Down
The Burden of Government
Economic Growth Since World War II
The Economy Slogs Along
The Stock Market as a Leading Indicator of GDP
Government in Macroeconomic Perspective
Where We Are, Economically
Keynesianism: Upside-Down Economics in the Collectivist Cause
The Economic Outlook in Brief
The Price of Government, Once More
Economic Horror Stories: The Great “Demancipation” and Economic Stagnation
Economics: A Survey (also here)
Why Are Interest Rates So Low?
Vulgar Keynesianism and Capitalism
Estimating the Rahn Curve: Or, How Government Spending Inhibits Economic Growth
America’s Financial Crisis Is Now
The Keynesian Multiplier: Phony Math
The True Multiplier
Some Inconvenient Facts about Income Inequality
Mass (Economic) Hysteria: Income Inequality and Related Themes

Obamanomics: A Report Card (Updated)

Here.

The good news? There is none.

The bad news? Sluggish growth persists, despite the hype about an unexpected “jump” in third-quarter GDP. The U.S. remains in the midst of the worst post-World War II “post-recession recovery,” which is neither post-recession nor a recovery.

The liberals want the U.S. to be European? Their dreams have come true, politically as well as economically.

A Prediction

It seems likely that General Motors will become a vassal of the United Auto Workers union and the federal government. Which means that GM will survive only because U.S. taxpayers pick up the tab in order to preserve the pensions of UAW members and keep them employed at above-market compensation. Similar arrangements may come to pass in other (effectively) nationalized industries — banking and health care, most notably (but not exclusively).

Nationalization of the auto, banking, and health-care industries (among others) will prove to be the straw that — when piled on Social Security and Medicare/Medicaid — breaks the back of the American economy. How so? The effective tax rate — the true cost of supporting Social Security, Medicare/Medicaid, nationalized industries, and the ever-growing panoply of government “services”  — will further (and fatally) deter work, saving, capital investment, innovation, and entrepreneurship. (See, for example, this piece by Lawrence Kudlow.)

The economy, if we are lucky, will muddle along at a rate of growth that is barely positive. And that growth will be phony because it will be attributable to the expansion of the public sector (i.e., government and its wholly controlled subsidiaries). We will then have achieved the Left’s Nirvana: Europeanism.

God help us. It’s unlikely that anyone else will.

UPDATE: Arnold Kling makes a related and equally gloomy prediction:

Cato Unbound this month deals with a core issue. Peter Thiel writes,

I no longer believe that freedom and democracy are compatible…

As one fast-forwards to 2009, the prospects for a libertarian politics appear grim indeed. Exhibit A is a financial crisis caused by too much debt and leverage, facilitated by a government that insured against all sorts of moral hazards — and we know that the response to this crisis involves way more debt and leverage, and way more government. Those who have argued for free markets have been screaming into a hurricane. The events of recent months shatter any remaining hopes of politically minded libertarians. For those of us who are libertarian in 2009, our education culminates with the knowledge that the broader education of the body politic has become a fool’s errand.

I think that perhaps the best positive approach for libertarians right now is to support institutions that compete with government. That means charities, churches, charter schools, clubs, consumer information services, and other sources of public goods. I would count the traditional family as an institution that competes with government.

You are likely to see Democrats under President Obama launch assaults against all of the institutions of civil society. Already, the Washington DC school voucher program is under attack, as is the tax deduction for charitable contributions. As libertarians, our electoral voice is worth little. Our threat to exit is probably too costly to carry out. Promoting institutions that compete with government is the best strategy I can come up with.

I tend to agree that for libertarians the “voice” option is looking bleak. I prefer exit options. But by the same token, I do not want to move to New Hampshire (see Jason Sorens) or to a seastead (see Patri Friedman).

UPDATE 2: The Supreme Court will be of no help to us, if Ed Whelan and I are right about its likely direction. I focus on the long run; Whelan, on the near future. Sadly, I must agree with his assessment:

Don’t be fooled by the false claims that we have a conservative Supreme Court. The Court has a working majority of five living-constitutionalists. Four of them—Stevens, Souter, Ginsburg, and Breyer—consistently engage in liberal judicial activism, and a fifth, Kennedy, frequently does. As a result, the Court is markedly to the left of the American public on a broad range of issues. Indeed, in coming years, Souter’s replacement may well provide the fifth vote for

  • the imposition of a federal constitutional right to same-sex marriage;
  • stripping “under God” out of the Pledge of Allegiance and completely secularizing the public square;
  • the continued abolition of the death penalty on the installment plan;
  • selectively importing into the Court’s interpretation of the American Constitution the favored policies of Europe’s leftist elites;
  • further judicial micromanagement of the government’s war powers; and
  • the invention of a constitutional right to human cloning.

American citizens have various policy positions on all these issues, but everyone ought to agree that they are to be addressed and decided through the processes of representative government, not by judicial usurpation.

The Perils of Europeanism

Charles Murray speaks eloquently in opposition to our Europe-ward drift; for example:

….If we want to know where America as a whole is headed–its destination–we should look to Europe.

Drive through rural Sweden, as I did a few years ago. In every town was a beautiful Lutheran church, freshly painted, on meticulously tended grounds, all subsidized by the Swedish government. And the churches are empty. Including on Sundays. Scandinavia and Western Europe pride themselves on their “child-friendly” policies, providing generous child allowances, free day-care centers, and long maternity leaves. Those same countries have fertility rates far below replacement and plunging marriage rates. Those same countries are ones in which jobs are most carefully protected by government regulation and mandated benefits are most lavish….

I stand in awe of Europe’s past. Which makes Europe’s present all the more dispiriting. And should make its present something that concentrates our minds wonderfully, for every element of the Europe Syndrome is infiltrating American life as well.

We are seeing that infiltration appear most obviously among those who are most openly attached to the European model–namely, America’s social democrats, heavily represented in university faculties and the most fashionable neighborhoods of our great cities. There are a whole lot of them within a couple of metro stops from this hotel. We know from databases such as the General Social Survey that among those who self-identify as liberal or extremely liberal, secularism is close to European levels. Birth rates are close to European levels. Charitable giving is close to European levels. (That’s material that Arthur Brooks has put together.) There is every reason to believe that when Americans embrace the European model, they begin to behave like Europeans.

Europeanism rests on the fallacy of the “free lunch.” The state, which produces nothing, somehow underwrites the benefits listed by Murray — as well as “benefits” like socialized medicine and month-long vacations. All of these supposed benefits must be paid for, of course; the only question is how they will be paid for.

The illusion of free benefits is a disincentive to work: Why work harder when the state will ‘give” you child care, health care, etc.? The cost of those “free” benefits is a disincentive to hiring, business formation, and capital investment, thus penalizing those Europeans who are willing to work and take the business risks that lead to job creation.

Because of these disincentives, most European nations have long experienced low growth and high unemployment. There is even more of that in Europe’s future (and in ours).

Why? Because the “free” benefits enjoyed by Europeans are not free; they come at a high price. And that price will become even less affordable because of the low birth rate among Europeans. The low birth rate means that future European generations (like our own future generations) will find it harder to bear the burden of supporting their elders (whose numbers will rise disproportionately) while paying for their own “free” benefits.

Europeans are able to enjoy “free” benefits, in part, because they are taxed lightly (relative to Americans) for defense; Europe is a free rider on America’s military strength. As our military budget is tapped to pay for our own adventures in Europeanism, the free ride will end for Europeans. They will then have to pay the price of defending themselves from, say, an aggressive Russia or they will have to succumb to Russia’s territorial and economic demands.

Europeanism, in sum, is a prescription for economic stagnation, unrest, demagogic despotism (as the likely response to unrest), and surrender.