​Thank you for watching the Let People Prosper Show, which today is the 15th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country.

​Today, I cover:
1) National: Latest reports from the markets and how the U.S. dollar is being devalued due to interest rates rising in other countries;
2) States: What's lacking in Louisiana's new irresponsible state budget and why more spending and tax reform is required to keep the state competitive, and why the Texas job market is thriving while Louisiana flounders; and
3) Other: Significant layoffs at Ford and why this is likely impacted by green energy agendas subsidizing electric vehicles and why subsidies and tax incentives are flawed approaches to reducing carbon emissions.

​You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share, subscribe, like, and leave a 5-star rating!

For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter (www.vanceginn.substack.com), share this post, and leave a comment.

​Key Point: Louisiana’s labor market shows improvement on the surface but there are underlying problems because of poor public policies which can be overcome with the Pelican Institute’s “Comeback Agenda.”
​
Louisiana’s Labor Market: Table 1 shows Louisiana’s labor market information over time until the latest data for May 2023 which was released this month by the U.S. Bureau of Labor Statistics. The BLS report has two surveys which provide different information about the labor market. The payroll survey provides information on nonfarm employment based on responses by established employers for at least two years. The household survey provides responses from households for those who have a job and their demographics, which determines measures like the labor force participation rate and unemployment rate.

​The payroll report shows that Louisiana’s net total nonfarm jobs increased by 4,600 jobs last month (+0.2%) to 1.96 million employed, which is 29,700 jobs below the pre-shutdown level in February 2020. Private sector employment was up by 4,400 jobs (+0.3%) to 1.65 million and government employment increased by 200 jobs (+0.1%) to 317,100 last month. Compared with a year ago, total employment was up by 48,400 jobs (+2.5%), with the private sector adding 41,700 jobs (+2.6%) and the government adding 6,700 jobs (+2.2%). This results in about 85% of all nonfarm jobs being in the productive private sector while 15% is in the government sector, which is the same as the share for the entire U.S.
 
Figure 1 shows the percent changes in changes in employment, average weekly hours, and average weekly earnings by industry over the last year. The industries leading the way in increases in employment are mining and logging, construction, and financial activities while information and other services have the largest declines. Average weekly hours have declined or been flat in all industries with manufacturing, trade, and professional and business services declining the most. Average weekly earnings increased the most in manufacturing and education and health services but declined in most industries with trade and financial activities declining the most. These data show the dichotomy between those in the labor market as there are industries gaining employment but average weekly earnings are falling in most cases and are falling even further when adjusted for inflation, hurting many chances for Louisianans to make ends meet.

​The household survey finds that the working-age population, defined as 16 to 64 years old, declined by another 894 people last month to 3.6 million, down 10,623 people over the last year, and down 34,106 people since February 2020. But the civilian labor force, defined as those who are working or looking for work, rose by 3,377 people to 2.1 million last month, 22,506 people over last year, and 27,910 people since February 2020. These figures result in a labor force participation rate of 59.6%, which is up from 58.8% from last year and up from 58.3% since pre-shutdown but well below the 61.2% rate in June 2009.
 
But the number of employed has been increasing as it was up 2,363 over the last year, contributing to the slightly higher unemployment rate over the last year from 3.5% to 3.5%; but this rate remains lower than the 5.2% rate in February 2020. And a broader look at Louisiana’s labor market shows that Louisianans still face challenges with the continued decline in the working-age population which weighs on the labor-market shortage and long-term economic growth. And comparisons with neighboring states based on several labor market measures indicate concerns.
 
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real (inflation-adjusted) gross domestic product (GDP) and personal income for Louisiana and other states.
 
Table 2 shows how the U.S. and Louisiana economies performed since 2020. The steep declines were during the shutdowns in 2020 in response to the COVID-19 pandemic, which was when the labor market suffered most. The increase in real GDP of +2.2% in Q4:2022 ranked 26th in the country, resulting in an annual decline in economic output by -1.8% in 2022 which was the second worst in the country.

​The BEA also reported that personal income in Louisiana grew at an annualized pace of +6.0% (ranked 32nd) in Q4:2022 (below +7.4% U.S. average). This resulted in personal income growth of 0.0% in 2022, ranking 50th of the states (see Figure 2). 

​The growth rate for 2022 was driven by the negative $10 billion (-4.0-percentage points) in transfer payments from a decline in safety net payments as the expanded child tax credit expired and more people found jobs but increases in net earnings by $8.4 billion (+3.4-percentage points) and other income by $1.6 billion (+0.6-percentage point). Personal income per person in Louisiana increased by 0.08% to $54,622 last year, which ranked 42nd in the country but the increase was far below inflation.
 
Bottom Line: More Louisianans gained jobs in April, but their pay hasn’t been keeping up with inflation in a stagnant economy. While the state improved its tax code in 2021, there was an irresponsible budget passed in 2023 which excessively grew spending, busted spending caps in FY23 and FY 24 and didn’t provide tax relief even with billions in excess tax revenue. Given these results, there is little reason to believe that there will be improvements in the state’s poor business tax climate, net outmigration of Louisianans, or the 19.6% poverty rate which ranks second highest in the country. Which pro-growth policies should be pursued instead? Refer to the Pelican Institute’s “Comeback Agenda” for policy recommendations that would turn the tide and provide opportunities for people to prosper.

​Originally published at Pelican Institute. 

Recent reports show that annual inflation rose 4% in May, down from 4.9% in April. In response to this and recent bank failures, the Federal Reserve announced that it’s pausing raising its target interest rate in June after approving 10 consecutive rate hikes, raising its target from nearly zero to a high of 5.25%.

But prices remain elevated and inflation is double the average 2% rate that the Fed prefers, which is making it challenging for Americans to get by. Food prices increased in May at home and away from home faster than 5% year-over-year, and shelter and new vehicle prices are up well above 4%. While wages are rising slightly, they still aren’t keeping pace with inflation year-over-year for 26 straight months.

Simply put, times are tough. This is why the Fed needs to use the one policy tool in its box that it directly controls and has the most significant influence on inflation: cutting its balance sheet.

Measures of the money supply are declining. The broader money supply known as M2 is down about 5% over the last year, which is the fastest pace since the Great Depression. And the Fed’s monetary base has declined by about 6% over the last year, which is the fastest pace since 2019.

But these are after some of the most rapid increases in these measures on record, which leaves their amounts extraordinarily high and manipulative in the marketplace.

These extreme increases in measures of the money supply resulted in artificial market distortion as more money was created out of thin air while available goods and services remained stifled by shutdowns, government spending, taxes, and regulations. As this made it more difficult to discern the true value of goods and services, price signals were thwarted. None of these ramifications will be abetted by declining interest rates or pausing rate hikes.

Just as the markets were hurt by the Fed increasing its monetary base, so can the markets improve with fewer distortions by the Fed decreasing its balance sheet. By relying less on government intervention and artificial liquidity, markets can get closer to being free markets and clear based on market fundamentals rather than government failures.

The Fed should at least double its rate of current cuts to achieve market sanity, meaning at least 12% year-over-year, until it gets to less than 10% of gross domestic product rather than the nearly 50% today. This would be aggressive and result in a harder economic landing but is necessary given the severe market distortions after many markets have been propped up on false strength for years.

​In the event of a hard landing, spending, employment, and investment would likely be affected as economic activity would be forced to slow down. But if the government lets markets work, the economy would stabilize more quickly. The long-term result would be that wages keep pace or grow faster than inflation again, cooking at home would be cheaper than eating out, and debts would decrease.

Unfortunately, since overspending is a bi-partisan problem, political pushback would likely ensue if the Fed goes this route as it will mean a higher cost of funding the massive national debt. Although cutting the balance sheet is the solution, a cultural shift among politicians that favors less spending must preclude it because the Fed is implicitly and explicitly helping the federal government from blowing up the budget more with even higher net interest payments.

Ultimately, the path toward a stronger and more prosperous economy lies in the Fed's willingness to take bold actions and the political will to embrace responsible spending and balance sheet practices. A brighter economic future can be achieved by prioritizing market stability over short-term political considerations.

Originally published at The Center Square. 

Oren Cass, founder of the think tank American Compass, presents a vision of the “new right” in his recently released book, Rebuilding American Capitalism. In it, he advocates for a top-down approach to governance in response to what he perceives as free-market failures. 

He tends to believe that certain politicians can and should shape markets to achieve desired outcomes rather than letting free markets, which are free people, work. This attempt to rebrand not only the right but capitalism itself is flawed, as history and sound economics prove. 

Cass pinpoints growing concerns in the economy to help bolster his arguments, like poor inflation-adjusted wage growth and lack of strong social and family units. These are problems making it harder for people to prosper, but they are not, as he suggests, evidence that free-market capitalism has failed. 

But these problems–if they are problems, as Scott Winship and Jeremy Horpedahl recently found that people are thriving–aren’t the results of free markets but are driven instead by government failures. 

These failures include bloated government spending, restrictive regulations, high tax burdens, excessive safety net programs, costly tariffs, and other barriers to entry in the marketplace. They are imposed by politicians and government bureaucrats, hindering competition, disrupting entrepreneurial endeavors, impeding wage growth, and destroying human flourishing.

Cass contends that capitalism only works under the right conditions, which must be facilitated by the government to keep the labor market and the economy strong. Rather than what he calls the “Old Right’s market fundamentalism” of fewer regulations and less government intervention being best, he welcomes more government with certain politicians in power. He proudly makes markets the scapegoat and, with it, globalization and financialization.  

In the book’s foreword, Cass writes:

"Globalization must be replaced with a bounded market that restores the mutual dependence of American capital and labor and invites the trade and immigration that benefit American workers. Financialization must be reversed so that both talent and capital in pursuit of profit find their best opportunities in productive investment rather than extraction and speculation."

Believing that more opportunities in the form of globalization inhibit rather than help Americans is the same faulty basis with which people discourage immigration and trade, which are central to thriving economies. 

But the crux of Cass’s theory is that he believes markets must be molded, even referring to work by the father of modern economics Adam Smith. Conveniently, he fails to cite the economist Frederick Hayek, who built on Smith’s ideas, to identify spontaneous order, the basis of free-market capitalism that argues economic growth and prosperity arise from voluntary transactions by free people, not government guidance and control. 

This “new right” idea was debunked long before Cass came along by Hayek (and others), who also highlighted the “knowledge problem” associated with central planning. He argued that no central authority can possess the information necessary to make efficient decisions for an entire economy. The complexity of economic interactions and the constant flux of information require decentralized decision-making and market mechanisms to aggregate and incorporate local knowledge effectively.

Hayek’s insights emphasize the limitations of top-down control and the importance of allowing market forces and individual actors to shape economic outcomes based on their localized knowledge and preferences from the bottom-up. But Cass would have it that government is heralded as the keeper of knowledge and the arbiter of good decisions rather than encouraging freedom and liberty in individuals, i.e., the essence of capitalism.

Capitalism allows individuals to pursue their economic aspirations and make decisions based on their knowledge and preferences through voluntary exchange within rules of the game set by limited government. Through this freedom, innovation, entrepreneurship, and competition thrive, leading to greater prosperity for all.

History is full of successful economic transformations driven by leaders who championed limited government and free markets.

Former President Calvin Coolidge cut government spending, cut taxes, and reduced the national debt, providing more paths for human flourishing. Likewise, former President Ronald Reagan cut taxes, tried to rein in government spending, and reduced regulations, unleashing economic growth and job creation. 

Both of them understood that cutting spending, reducing taxes, and removing excessive regulations create an environment where businesses thrive and workers can benefit. Their approaches embraced the power of individual freedom and self-determination, not top-down control that breeds the opposite.

Oren Cass’s theory of the “new right” and its embrace of government fundamentalism misunderstands the principles of capitalism and human behavior. Top-down approaches, rooted in centralized control and regulation, do not lead to economic prosperity or personal freedom no matter who is in charge but do distort the efficient allocation of resources, undermine the adaptability of markets, and reduce opportunities to let people prosper. 

To achieve a thriving and prosperous economy, we must adhere to and strengthen the principles of free-market capitalism, which too much of our economy today is deprived of when considering healthcare, education, transportation, manufacturing, and the labor market. This should include embracing limited government, voluntary exchange, and individual freedom as the pillars of strong families, productive workers, and profitable employers. 

Economist Milton Friedman noted what this debate is about decades ago. “The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.” And while “history suggests that capitalism is a necessary condition for political freedom,” it’s clearly “not a sufficient condition.”

But capitalism is the best system yet that has supported economic prosperity and political freedom. The problem is that we have had too little free-market capitalism for people to thrive because of too much government. 

There’s no need for a “new right” of big-government progressive policies offered by Cass and others when free-market capitalism of the “old right” is too often missing in our lives. ​

​Originally published at Econlib. 

​Today, I'm honored to be joined by Dr. Jay Bhattacharya, Professor of Health Policy at Stanford University and a research associate at the National Bureau of Economics Research.
​
We discuss:
1) How the U.S. policy response to the COVID-19 pandemic harmed the poor, working class, and children and the subsequent side effects those groups continue to grapple with (see his Twitter thread here for more details);
2) Why shutting down the economy and enforcing social distancing is not effective from a health and medicine perspective and a better alternative; and
3) Why Dr. Bhattacharya fears the U.S. would have the same response in the event of another pandemic and his suggestions for how to handle one.

​Dr. Bhattacharya’s bio:

• Jay Bhattacharya is a Professor of Medicine at Stanford University. He is a research associate at the National Bureau of Economics Research, a senior fellow at the Stanford Institute for Economic Policy Research, and at the Stanford Freeman Spogli Institute. He holds courtesy appointments as Professor in Economics and in Health Research and Policy. He directs the Stanford Center on the Demography of Health and Aging. Dr. Bhattacharya’s research focuses on the economics of health care around the world with a particular emphasis on the health and well-being of vulnerable populations. Dr. Bhattacharya’s peer-reviewed research has been published in economics, statistics, legal, medical, public health, and health policy journals. He holds an MD and PhD in economics from Stanford University.

You can watch this interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share on social media, subscribe to your favorite platform and my newsletter, like it, and leave a 5-star rating. Find show notes, thoughtful economic insights, media interviews, speeches, blog posts, research, and more at my website and my Substack newsletter.