In yesterday’s Wall Street Journal, Mortimer Zuckerman, the Chairman of U.S. News and World Report, writes that “A Jobless Recovery is a Phony Recovery”. He points out that counting the people who want full time work and can’t get it, as well as those who have stopped looking, the real unemployment rate is really 14.3% rather than the officially reported 7.6%. Enormous fiscal (deficit spending) and monetary (quantitative easing) stimulus has been able to stimulate an average growth rate of only 2% for the past four years since the recession ended in June 2009. During these last four years the civilian workforce-participation rate has actually declined from 65.7% to 63.5% which has never happened before in an even slowly expanding “recovery” like we have at the present time.
Keynesians and Obama Administration apologists say that we need even more fiscal stimulus (we can worry about deficits and debt later); tax reform won’t help because tax rates are already low; massive new regulations (ObamaCare, Dodd-Frank financial regulations, EPA environmental regulations) are so important that they override negative economic effects; etc. At some point, the sooner the better, we need to recognize that current policies are not working and are, in fact, retarding the recovery from the recession.
Tax reform is the biggest single change which would help. Removing deductions and tax preferences, and replacing them with lower tax rates, would give a big boost to investment and entrepreneurship, and thereby be a huge stimulus to the economy. This includes eliminating the tax exemption for employer provided health insurance. Combining this reform with repeal of ObamaCare’s Employer Mandate would also lead to getting the cost of healthcare under much better control. The overall cost of healthcare, 18% of the American economy and growing, is a huge long term burden and must be turned around.
The massive complexity of Dodd-Frank is a huge burden on the financial industry. Preventing banks from becoming “too big to fail” can be accomplished by having more adequate reserve requirements along with sufficient default and liquidity insurance pools, along with otherwise minimal regulation.
Only more private investment and risk taking can make the economy grow faster and bring down the unemployment rate. The sooner our national policy makers (and the voters who elect them!) figure this out and act accordingly, the sooner that our economy will truly begin to recover from the Great Recession.