Louisiana Economic Situation October 2022

Key Point: Louisiana’s labor market looks okay on the surface but the working-age population is 12,366 (-0.35%) below pre-shutdowns in February 2020 and private sector employment remains 35,900 (-2.2%) below then. Moreover, the decline in real GDP annualized growth in Q2:2022 of 3% was the 5th worst in the nation.

Labor Market: The best path to prosperity is a job, as work brings dignity, hope, and purpose to people by allowing them to earn a living, gain skills, and build social capital that endures. The table below shows Louisiana’s labor market over time according to the U.S. business cycle until the latest data for September 2022. Net total nonfarm jobs in the state increased by 5,000 last month, resulting in increases for 11 of the last 12 months but remains 56,900 jobs below the pre-shutdown level in February 2020 while the working-age population is down 12,366 since then. Compared with a year ago, total employment was up by 95,600 (+5.2%) with the private sector adding 98,100 jobs (+6.4%) and the government cutting 2,500 jobs (-0.8%). The labor force participation rate of 58.5% is 0.1-percentage point lower than it was in February 2020 but well below June 2009 at the trough of the Great Recession. The employment-population ratio is 1-percentage point below where it was in February 2020, and the private sector employs 35,900 (-2.2%) fewer people than then. Louisianans still face challenges given these latest figures for the labor market and remain well below the pre-shutdown trend.

Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real gross domestic product (GDP) for Louisiana and others states. The following tells the story of the U.S. and Louisiana economies over the last two and a half years. The steep decline was during the shutdowns in 2020 in response to the COVID-19 pandemic, which was when the labor market suffered. The decline in real GDP annualized growth in Q2:2022 of 3% was the 5th worst in the nation. The BEA also reported that personal income in Louisiana grew at an annualized pace of 5.8% (19th best) in Q2:2022 (tied +5.8% U.S. average).

Bottom Line: Louisianans continue to feel the effects of the shutdowns in 2020 and policies that are too restrictive in allowing more economic growth and prosperity with well-paid jobs. This has influenced a net outmigration of Louisianans to other states over time, which is a drain on the state’s economic potential now and in the future. State and local policymakers should work to reverse this trend by passing pro-growth policies following the Pelican Institute’s roadmap for a comeback story.
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Recommendations: In 2023, the Louisiana Legislature should provide the state’s comeback story by:

• Louisiana’s leaders can strengthen the state’s future by passing pro-growth policies that limit government spending, cut and reform taxes, expand school choice, improve workforce development, and remove barriers to work.
• Improving the state’s economic situation will come from increasing economic freedom, which currently ranks 24th  in the latest report by the Fraser Institute and increasing individual liberty that will help Louisianans better resist D.C.’s overreach—which has resulted in stagflation—and flourish more for generations to come.

Originally posted at Pelican Institute

​he Fraser Institute recently released the 2022 Economic Freedom of the World (EFW) Report, reflecting data and rankings for 2020. The findings show that economic freedom in the U.S. fell to its lowest level since 1975, from 6th place to 7th. Although all countries in the report were negatively affected in terms of economic freedom by the COVID-19 pandemic and subsequent shutdowns. The U.S. decline is considerable and indicative of pressing problems that will continue to erode our liberty and prosperity if left unresolved.

Thankfully, the problems that put us here also point to the solutions that can propel us forward into prosperity.

Aggressive Shutdowns

During the peak of the pandemic-related shutdowns, the EFW rating fell to its lowest level since 2009, from the depths of the Great Recession.

Entrepreneurs were sidelined, small businesses deemed “non-essential,” and many Americans sent home from work, reducing economic freedom and opportunities to quickly overcome the government-imposed dire situation.

I recently interviewed Dr. Robert Lawson, founding co-author of the EFW report and Clinical Professor at Southern Methodist University’s Bridwell Institute, about these findings.

“The income per capita in the top countries [in the report] is about eight to nine times higher than the lowest-ranking nations,” he explained.

Economic freedom does not significantly affect equality, a common concern among critics, but it does have empirically positive outcomes for prosperity. As Thomas Sowell famously said, “There are no solutions. There are only trade-offs.”

In this case, the temporary health concerns of the public were placed on a pedestal that did not consider long-term prosperity. While vaccines and reopenings may have provided some relief from the pandemic, the massive economic consequences are proving to be much longer and steeper than it seems many policymakers were willing to concede. 

Out-of-Control Government Spending

In just five months, we’ll be three years out from shutdowns and stay-at-home mandates that continue to negatively affect our economy today. The national deficit of 2020 was more than three times what it was in 2019, which was already bloated at $1 trillion due to excessive government spending.

At the time, many were convinced this was necessary for getting us through a public health crisis, and they were discouraged from considering the financial consequences these measures could impose. Couple that with the Federal Reserve’s more than doubling its balance sheet to $9 trillion, simply printing money at this point, and the U.S. is enduring its highest inflation rate since 1982.

And now, the Biden Administration discounts the wisdom history can teach us about inflation and instead opts to endorse new, unproven economic schemes like Modern Monetary Theory, which asserts that the Fed should create more money to fund Congress’ deficit spending, regardless of how it alters inflation.

It’s no wonder, then, that inflation continues to climb, robbing people of their purchasing power. This is theft through inflation.

Change is critical not just for economic output but because “more economic freedom improves indicators of social wellbeing,” as Lawson says. With more purchasing power and fewer impeding regulations, Americans can overcome challenging circumstances through work and long-term self-sufficiency, instead of being dependent on government programs that provide short-term payments. But cultivating this change requires creating trust as a culture in communities.

“In rule-based, highly regulated countries, building up trust is much harder,” says Lawson, who ventured to Venezuela, Cuba, Russia among other countries, speaking with citizens about how the lack of economic freedom affects their lives as research for his book Socialism Sucks. Without social trust, people don’t want to trade. Each new regulation and trade restriction the government passes weakens an individual’s ability to bring about change at ground level.

In addition to improving economic freedom, we need more hope in our public discourse. For nearly three years now, Americans have woken up daily to harrowing messages about how they’re vulnerable and incapable due to a widespread virus, inflation, supply-chain problems, and more. The common gloom-and-doom narrative has become the norm, leaving the nation yearning for optimism. Optimism sets democracy apart from totalitarianism and is desperately needed today.

The truth of the matter, and the hope it provides, is that there is a solution to this crisis: economic freedom. While the next annual EFW report hits in 2021 will likely reveal an even worse situation for economic freedom, a trend will likely continue given how the Biden administration is pursuing big-government policies that are destroying not only economic and individual liberty, but the American Dream itself.

We need a return to the classical liberalism that has advanced people’s livelihoods through capitalism and limited government. Those principles helped set the stage for billions of people to be brought out of extreme poverty, so let’s get back to them.

Originally posted by AIER

Top Stat: Average hourly earnings (inflation-adjusted) down about 3.0% year-over-year
Key Point: The economy will get worse before it gets better because of bad policies out of D.C.

Overview: The shutdown recession from February to April 2020 and subsequent government failures caused major destruction to Americans’ livelihoods, which includes a recession and high inflation. One policy mistake was Congress adding $6.5 trillion in deficit spending since January 2020 to reach the new high of $31.1 trillion in national debt, or more than $247,000 owed per taxpayer. Another mistake is the Federal Reserve monetizing so much debt, creating 40-year-high inflation rates. These policy mistakes have resulted in an artificially inflated boom that’s busting into what will likely be a long, deep recession with high inflation. The failed policies of the Biden administration, Congress, and the Fed must be replaced with a liberty-preserving, free-market, pro-growth approach so there are more opportunities to let people prosper.

Labor Market: Today, the U.S. Bureau of Labor Statistics released a weaker U.S. jobs report for September 2022 than in recent months. The report shows that there were 263,000 net nonfarm jobs added last month, with 288,000 added in the private sector. The official U3 unemployment rate increased slightly to a historically low 3.5%, but challenges remain. These challenges include about a 3% decline in average hourly earnings (inflation-adjusted) over the last year, a 0.3 percentage point lower prime-age (25–54 years old) employment-population ratio at 80.2% than in February 2020, and a 1.1-percentage-point lower labor-force participation rate at 62.3% with at least three million people out of the labor force.

Moreover, since the shutdown recession ended in April 2020, total nonfarm jobs have increased by 22.5 million for an increase of 514,000 since the previous peak in February 2020. About 56% of these total jobs gained were during the Trump administration from April 2020 to January 2021 and 44% of them during the Biden administration thereafter. Private nonfarm jobs have increased by 22.1 million and are now up 1.1 million from the past peak. Similarly, about 6 out of 10 private jobs gained were during the Trump administration.

Adding to the concern is a “zombie economy.” This includes “zombie labor” as many workers are sitting on the sidelines and others are “quiet quitting” while there is a declining number of unfilled jobs than unemployed people. And that demand for labor is likely inflated from many “zombie firms,” which run on debt but are likely to lay off workers as costs of debt rise with interest rate increases. Small businesses slowly adding jobs in recent months and their sentiment remain near a half of a century low are worrying signs.

Economic Growth: The U.S. Bureau of Economic Analysis’ data below show a comparison of real total gross domestic product(GDP), measured in chained 2012 dollars, and real private GDP, which excludes government consumption expenditures and gross investment.

The shutdown recession contracted at historic annualized rates because of individual responses and government-imposed shutdowns related to the COVID-19 pandemic. Since then, economic activity has had booms and busts because of inappropriately imposed government restrictions in response to the pandemic, even as there is little to no evidence that these restrictions helped. However, they did severely hurt people’s ability to exchange and work.

In 2021, the growth in nominal total GDP, measured in current dollars, was dominated by inflation, which distorts economic activity. The GDP implicit price deflator was up 6.1% for Q4-over-Q4 2021, representing half of the 12.2% increase in nominal total GDP. This inflation measure was up by 9.1% in Q2:2022—the highest since Q1:1981—for an 8.5% increase in nominal total GDP. There were two consecutive declines in real total (and private) GDP, indicating a recession.

This criterion has been used to date every recession since at least 1950. The Atlanta Fed’s early GDPNow projection on October 7, 2022, for real total GDP growth in Q3:2022 was 2.7%, which was a large revision up and the actual real GDP figures will be reported on October 27.

For historical comparison, the last expansion from June 2009 to February 2020 had average annualized growth of 2.3% in real total GDP and 2.8% in real private GDP. The earlier part of the expansion had slower real total GDP growth but had faster real private GDP growth. An explanation for this discrepancy is that deficit-spending in the latter period grew faster, contributing to crowding-out of the productive private sector. With excessive spending bloating the national debt thereafter, especially since the shutdown recession, the Fed has monetized much of the new debt instead of allowing many interest rates to rise to a market-determined rate. This resulted in higher inflation as there has been too much money chasing too few goods as their production has been overregulated and overtaxed. The consumer price index (CPI) is up by 8.3% in August 2022 over the last year—highest rate since January 1982. After adjusting total earnings in the private sector for CPI inflation, real total earnings are flat in August 2022 since February 2020 as inflation has limited people’s purchasing power. Elevated inflation will continue until the Fed more sharply reduces its balance sheet to provide a positive real federal funds rate target.

Just as inflation is always and everywhere a monetary phenomenon, high deficits and taxes are always and everywhere a spending problem. As the federal debt far exceeds U.S. GDP, and President Biden has proposed an irresponsible FY23 budget, America needs a fiscal rule like the Responsible American Budget (RAB) with a maximum spending limit based on population growth plus inflation. If Congress had followed this approach from 2002 to 2021, the (updated) $17.7 trillion national debt increase would instead have been a $1.1 trillion decrease (i.e., surplus) for a $18.8 trillion swing to the positive that would have reduced the cost to Americans. The Republican Study Committee recently noted the strength of this type of fiscal rule in its FY 2023 “Blueprint to Save America.” And the Federal Reserve should follow a monetary rule.

Bottom Line: Americans are struggling from bad policies out of D.C., which have resulted in a recession with high inflation.

Instead of passing massive spending bills, like passage of the “Inflation Reduction Act” that will result in higher taxes, more inflation, and deeper recession, the path forward should include pro-growth policies. These policies ought to be similar to those that supported historic prosperity from 2017 to 2019 that get government out of the way rather than the progressive policies of more spending, regulating, and taxing. The time is now for limited government with sound fiscal and monetary policy that provides more opportunities for people to work and have more paths out of poverty.

Recommendations:

• Set a pro-growth policy path with less spending, regulating, and taxing at all levels of government.
• Reject new spending packages that America cannot afford nor needs; pass the RAB
• Enact return-to-work policies; impose strict fiscal and monetary rules—with the Fed having a much smaller balance sheet and a much higher federal funds rate target until America finally ends the Fed.

Originally posted at Pelican Institute

NEW ORLEANS— The Pelican Institute for Public Policy, a New Orleans-based free market think tank, has announced the hiring of Dr. Vance Ginn and Jamie Tairov. Ginn will serve as the institute’s chief economist and Tairov as senior policy associate.

“I am thrilled to welcome Vance and Jamie to the Pelican team as we work to write Louisiana’s comeback story,” said Pelican CEO Daniel Erspamer. “The best talent in the country is required to accomplish bold change and ensure everyone in Louisiana has the opportunity to flourish. Vance and Jamie bring nationally recognized policy expertise, research excellence and a deep commitment to winning on behalf of Louisiana families to achieve our mission at this critical time of charting a new path for Louisiana.”

Ginn is a free-market economist. Before joining the Pelican Institute, he served as the chief economist at the Texas Public Policy Foundation and is currently policy director for the Alliance for Opportunity campaign, a multi-state poverty relief initiative featuring Louisiana, Texas and Georgia. In 2019 and 2020, he served as the associate director for economic policy of the Office of Management and Budget at the Executive Office of the U.S. President. He has contributed to The Wall Street Journal, Fox News, The Washington Post and National Review.

“I’m excited to join the fantastic team at the Pelican Institute and hit the ground running toward providing proven free-market policy solutions that let people prosper,” Ginn said. “There is a historic opportunity in Louisiana to work on budget restraint, tax reform and poverty relief. We want to remove barriers and unleash families in search of a bright future in Louisiana. By working toward limited government, there will be unlimited paths for families to achieve their hopes and dreams, and that is what I hope to foster with the team at the Pelican Institute for all Louisianans.”

Tairov will bring years of Louisiana policy and budgetary expertise to the Pelican Institute and will serve as senior policy associate. Before joining Pelican, she spent many years in various roles at Louisiana State University, where she completed a master’s in public administration. She then worked as a budget analyst for the fiscal division of the House of Representatives. At Pelican, she will be working to advance solutions in the areas of fiscal policy, social safety net, criminal justice and occupational licensure.

“I am so excited to join the Pelican Institute and work to advance proven policies that will give all Louisianans the opportunity to flourish,” Tairov said. “Through proven social safety net and criminal justice reforms, as well as changes to our state’s complex tax code and budgetary systems, we really can write Louisiana’s comeback story.”​