January 16 2013
Sluggish Growth: We're Doing This to Ourselves
If you want to put the country’s sluggish economic growth in historic perspective, here is the lead to a sobering column headlined “The Wages of Unemployment” in today’s Wall Street Journal:
From the mid-17th century to the late 20th century, the American economy grew roughly 3.5% a year. That growth rate has since declined significantly. When the final figures are in for 2012, the annual rate of real output growth for the first dozen years of this century is likely to be about 1.81%.
What accounts for the slowdown? An important part of the answer is simple: Americans aren't working as much today. And this trend reflects more than the recession and sluggish economy of the past few years.
The national income accounts suggest that about 70% of U.S. output is attributable to the labor of human beings. Yet there has been a decline in the proportion of working-age Americans who are employed. …
The decline matters more than you may suppose.
The column is by American Enterprise Institute’s Richard Vedder.
According to Vedder, if the same proportion of people were working today as in 2000, even assuming they would be 25 percent less productive on average than members of the current labor force, the GDP would be more than 5 percent higher than it is. That would translate into $800 billion, or about $2,600 per person. It would mean that the annual growth rate of GDP would be 2.2 percent. That’s lower than it has been throughout most of our history, but higher than the current 1.81 percent.
So, if unemployment is a key factor, we need to ascertain why unemployment remains so stubbornly high. Unfortunately, the answer may lie in government policies. In other words, we’re doing this to ourselves. Or, at least, the politicians are doing this to us.
Vedder lists five government programs that militate against a higher employment rate: food stamps, Social Security disability payments, Pell Grants, and extended unemployment benefits. Most of these programs fly in the face of human nature. On the subject of food stamps, Vedder writes:
Above all else, people work to eat. If the government provides food, then the imperative to work is severely reduced. Since the food-stamp program's beginning in the 1960s, it has grown considerably, but especially so in the 21st century: There are over 30 million more Americans receiving food stamps today than in 2000.
The sharp rise in food-stamp beneficiaries predated the financial crisis of 2008: From 2000 to 2007, the number of beneficiaries rose from 17.1 million to 26.3 million, according to the Department of Agriculture. That number has leaped to 47.5 million in October 2012. The average benefit per person jumped in 2009 from $102 to $125 per month.
To be sure, we would expect the number of people on food stamps to increase with rising unemployment, poverty and falling incomes in late 2008 extending into 2009 and perhaps even into 2010 (even though the recession was officially over in late 2009). But more is going on here.
Compare 2010 with October 2012, the last month for which food-stamp data have been reported. The unemployment rate fell to 7.8% from 9.6%, and real GDP was rising steadily if not vigorously. Food-stamp usage should have peaked and probably even begun to decline. Yet the number of recipients rose by 7,223,000. In a period of falling unemployment and rising output, the number of food-stamp recipients grew nearly 10,000 a day. Congress should find out why.
The most intriguing point concerns Pell grants. We tend to think of these grants as “investments” in future employment. People get a Pell grant, go to college, and become more employable, right?
It appears from research that nearly half of four-year college graduates work in jobs that do not require a college degree. Pell grants, however, enable people who are going to get jobs that don’t require college to stay out of the workforce longer. This wouldn't bother me if they were reading Plato and Aristotle and acquiring the liberal education I believe can benefit anyone, from carpenter to king. But suspect thay aren't doing quite that.
Unfortunately, every example of a program that impedes participation in the workforce is a program beloved by Democrats.