U.S. House Speaker KICKED OUT! Why Gov Could Pass Sustainable Budgets & MISLEADING Jobs Report | This Week's Economy Ep. 29
Thank you for listening to the 29th episode of "This Week's Economy," where I briefly recap and share my insights on key economic and policy news.
Today, I cover:
1) National: No government shut down as Congress passes a continuing resolution budget, House Speaker Kevin McCarthy kicked out with a new speaker to be voted in next Wednesday, presidential candidate Nikki Haley bashes excessive government spending and signs Taxpayer Protection Pledge as all candidates should, and latest jobs report reveals overall weakness;
2) States: Americans for Tax Reform released its Sustainable Budget Project for states that I helped author and Texas will have another special legislative session this Monday to discuss passing Universal School Choice; and
3) Other: My latest op-eds, including one published by The Wall Street Journal with Grover Norquist on the national and state spending problems, and another published by The Daily Caller on why the FTC suing Amazon over antitrust concerns is a waste of time and taxpayer dollars.
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Today, I cover:
3) Other: My thoughts on the DOJ lawsuit against Google for violating antitrust laws and why I believe it's an attack on consumers and capitalism.
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Americans say the economy is the most important problem facing the country. But major headlines covering the latest jobs report for August do their best to downplay this concern. The New York Times’ headline covering the news was, “August Jobs Report: U.S. Jobs Growth Forges On,” but the economic reality is far less cheerful.
Sure, the jobs report beat the consensus estimate by economists. But that high-level look at the data fails to address underlying issues keenly felt by many Americans that are apparent with more scrutiny. And these problems won’t be over unless policies out of D.C. substantially and quickly improve.
Last month, 187,000 jobs were added, according to the payroll survey, compared with the anticipated 170,000. But the jobs added in the prior two months were revised lower by a cumulative 110,000 jobs, bringing the net jobs added in August to just 77,000. This extends an ongoing trend of downward revisions over the last several months.
According to the household survey, the unemployment rate, a weak indicator of the labor market’s strength, jumped substantially from 3.5% to 3.8%. Coupled with news of slow wage growth of just 0.2% last month, there is growing concern among Americans trying to make ends meet.
We know the higher unemployment rate isn’t from too few jobs available. The number of job openings has been nearly double that of those unemployed for a long time, though decreasing quickly. Instead, the higher rate suggests a sluggish economy in which there are more unemployed or ghost job openings from companies that do not intend to hire but want to gauge interest and competition.
There is some good news. The labor force increased by 736,000, which raised the participation rate to 62.8% in August. This is the highest rate since February 2020, just before the shutdowns in response to the COVID-19 pandemic.
More people entering the labor force and higher participation rates appear promising. However, the increase in the labor force was a combination of 222,000 more people employed, with the other 514,000 people becoming unemployed. And diving deeper, 4.2 million more adults remain not in the labor force compared with February 2020.
Many of these individuals have been unemployed for years, so obtaining employment could be difficult due to a lack of productivity signals in their resume on top of employers dealing with a stagnant economy.
The rise in the unemployment rate, lackluster wage growth, and the possibility of unfilled job openings all point to a weak labor market. Add in ongoing stagflation, as too-high inflation continues, and Americans are rightly concerned about the future.
Some blame the Federal Reserve for this weakness because of its fight to bring down inflation after creating it. However, Milton Friedman debunked this tradeoff between lower inflation and a higher unemployment rate decades ago. Specifically, there’s no long-run tradeoff between the two, so the Fed must focus on the single mandate of price stability instead.
The Fed has been working to combat inflation by hiking its interest rate target to a multi-decade high of 5.5% and slowly reducing its bloated balance sheet. This is why you’ve seen car loan and mortgage rates soar to multi-decade highs. These higher rates significantly disrupt the new car and housing markets.
But this is the resulting bust after the artificial post-pandemic “boom” as new money moves throughout the economy and manipulated interest rates create malinvestments. We felt the higher inflation rate last year from the Fed’s actions of close to 9%, and now it’s about one-third of that rate, but this remains about 50% higher than its 2% flexible average inflation target.
The Fed has stated that it may raise interest rates further. And I believe that it will be forced to raise its target rate to about 6% before this hiking cycle is over. But just raising this rate won’t be enough to curb inflation for long if Congress’ deficit spending remains unchecked. This will force the Fed to monetize it to avoid putting more pressure on Congress to get their irresponsible fiscal house in order.
President Biden and Democrats in Congress made this situation worse with the passage of the misnamed Inflation Reduction Act, which is likely to cost about four times the initial $300 billion estimate over a decade. Their wasteful spending, along with Republicans’ excessive spending before them, has led to a fiscal crisis, the most significant national threat.
Congress will unlikely make the needed reforms to the primary drivers of the deficit of mandatory spending programs like Social Security and Medicare because of rent-seeking in politics. This will likely result in the Fed not sufficiently cutting its balance sheet to stop inflation. Rather, the Fed will probably choose to increase its balance sheet, putting more inflationary pressure on the economy when that’s the last thing it needs.
A vital measure of the economy known as real gross domestic output, the real average of gross domestic product and gross domestic income, has declined in three of the last six quarters. While I don’t want there to be a hard landing, this is the situation that central planners by Congress spending and taxing too much, President Biden regulating too much, and the Fed printing too much have left us.
There will be efforts by the government to correct these government failures, but we shouldn’t double down on past mistakes. Let’s learn from these failures and remember the most recent lesson in the 1980s: President Reagan cutting regulations, Congress passing tax cuts (but spending too much), and Fed Chairman Paul Volcker cutting the balance sheet.
Initially, the cuts to the Fed’s balance sheet contributed to soaring double-digit interest rates, and the economy suffered a double-dip recession. However, afterward, the economy was able to heal from the prior hindrances of past presidents, congressional members, and the Fed, resulting in a long period of economic prosperity, which is often called the Great Moderation.
What we have today is an economy where the government is growing, and markets aren’t as much. This must be reversed. When workers, entrepreneurs, and employers are free to engage in voluntary transactions, competition thrives, innovation flourishes, and resources are allocated efficiently.
Moreover, free markets promote consumer choice and personal freedom. When government interventions, such as wasteful spending, excessive regulations, and high taxes, are removed, markets can function more efficiently and respond dynamically to changing economic conditions.
Striking the right balance between constitutionally limited government functions and preserving the freedom of markets is crucial for achieving a vibrant and prosperous economy.
Rising unemployment, stagnant wages, and the specter of inflation require a multifaceted approach. Raising interest rates hasn’t been enough. The government must focus on responsible fiscal and monetary policies, including reducing government spending, addressing burdensome regulations and taxes, and substantially cutting the Fed’s balance sheet.
Americans are still suffering, and there is no time to waste in aggressively assessing these measures that cause economic strain so that people can get back to flourishing instead of merely “making it.”
Originally published at Econlib.
As the U.S. commemorates Labor Day, we should consider how many Americans aren’t actively participating in the workforce and what to do about it.
The labor force participation rate was 66% in 2007, declining to 63.3% in February 2020. Today, it’s even lower at 62.8%. Although there are many reasons for this trend, including Baby Boomers retiring, one glaring cause that will continue to exacerbate it with time is the flawed safety-net system.
Labor Day was created to commemorate the many contributions of American workers, and rightly so. There’s an inspiring symbiotic relationship between the dignity individuals derive from working and the flourishing that the country experiences as a result. This is why it’s so concerning that the current structure of the many safety-net programs can disincentivize work-capable individuals from seeking, finding and keeping employment. Too often, these recipients become trapped in a cycle of government dependence.
Programs like Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) have minimal work requirements. This can discourage users from seeking better-paying employment opportunities, especially if the increase in income reduces the payments from these programs, which is called a benefits cliff. With purchasing power decreased from ongoing inflation, dependence on these programs is growing.
There’s a high cost of these programs on recipients and taxpayers funding it, with little to show for it.
Anti-poverty efforts have cost taxpayers about $25 trillion (adjusted for inflation) since 1965 and more than $1 trillion annually. While the official poverty rate in America has barely changed since 1970, only six years after President Lyndon B. Johnson declared the “war on poverty,” other measures show substantial improvements in people’s livelihoods. But much of that is because of safety-net programs that boost people’s income at the expense of other taxpayers.
Ideally, a flourishing civil society with strong families, communities, nonprofits, churches and other institutions in civil society would render government assistance irrelevant. But we’re a long way from that vision being attainable. Until then, these programs need key reforms, and implementing empowerment accounts (EAs) would help.
EAs are designed to consolidate state-administered safety-net programs into a single account accessible through a debit card. While they initially focus on streamlining existing programs, their potential lies in gradually replacing most, if not all, other safety-net programs over time.
EAs incorporate a work requirement for work-capable adults, complemented by skills training and education. Recipients would also have access to financial literacy education, community-based case management and opportunities to build savings while enrolled in the program, helping reduce the benefits cliff.
An essential aspect of EAs is their adaptability.
The account’s government contribution would depend on current income, assets and dependents. Unlike current safety-net programs with income thresholds that create benefit cliffs, empowerment accounts would use a time limit while offering more flexible income limits for up to a year. This approach ensures recipients are motivated to achieve self-sufficiency within a defined period. Community-based case management, provided by established non-profit organizations, would connect recipients with crucial resources and foster connections within local communities.
EA’s structure of requiring participation from safety-net recipients would go beyond merely providing financial assistance to equipping them to sustain fiscal and employment stability. The result would not only mean taxpayer funds are more efficiently spent, but struggling individuals are equipped for independence, leading to a decreased poverty rate, higher labor force participation rate and a flourishing economy.
Too often, the government promotes mediocrity by quickly “rescuing” people from their situation without showing them how to maintain stability. But all individuals deserve to experience the irreplaceable satisfaction that comes from earned self-sufficiency.
While celebrating Labor Day, Americans should emphasize not lack of work but meaningful work that aligns with individual callings. By empowering individuals to regain their financial independence through encouraging labor force participation, we pave the way for holistic human flourishing.
Implementing empowerment accounts would mark a pivotal step towards promoting prosperity and reducing dependency on government safety nets.
Originally published by The Daily Caller.
Texas is a leader in job creation over the last year and since February 2020. But Texas faces major headwinds as the recently ended 88th Legislature looked more like California than what is expected from the free-market bastion of hope and prosperity in Texas.
The best path to let people prosper is free-market capitalism as it is the best economic institution that supports jobs and entrepreneurship for more people to earn a living, gain skills, and build social capital.
Table 1 shows Texas’ labor market for July 2023 from the U.S. Bureau of Labor Statistics.
The labor market continues to improve in Texas even as there are some weaknesses remaining.
The economy continues to expand in Texas though there are headwinds.
Strengthening the Texas Model will help Texans better resist D.C.’s overreach and flourish more for generations to come.
Vance Ginn, Ph.D.