The American Enterprise Institute’s Nicholas Eberstadt has performed a valuable national service with two recent publications: “Men without Work” and “Our Miserable 21st Century” These works lay out in great detail what has gone wrong in our country in the past 16 years:
Overall household wealth has doubled as a result of a surging stock market fed by the Federal Reserve policy of quantitative easing.
The recovery from the crash of 2008 has been singularly slow and weak compared to the 1947 – 2007 trend line.
The work rate for Americans aged 20 and older has declined by 4% from 66% to 62%.
Half of all prime working age male labor-force dropouts take opioid medication on a daily basis paid for by Medicaid. 57% of this population class is collecting disability benefits.
17 million male ex-prisoners and convicted felons are now in our midst and largely unable to find the employment which would lead to productive lives.
Here is Mr. Eberstadt’s initial prescription for addressing this very serious social problem:
Revitalize American business and its job-generating capacities. According to the Brooking Institution’s Ian Hathaway and Robert Litan, “business deaths now exceed business births for the first time in the thirty-plus-year history of our data.”
Reducing the immense and perverse disincentives against male work embedded in our social welfare programs. For example, U.S. disability programs are subject to widespread abuse and gaming. Social welfare programs should emphasize a “work first” principle emphasizing training and education, job placement, and tax credits, etc.
Drawing men with a criminal record back into productive work life. Note that the huge increase in America’s ex-prisoner and ex-felon population in recent years coincides with a dramatic drop in rates for both violent crime and property crime. This suggests that former criminals do not pose a continuing danger to society.
Conclusion. For the future prosperity and social cohesion of our country addressing this problem should be a very high priority. Let’s hope that President Trump gets the message.
Our economy is doing a little better recently but not nearly as good as it could be. In my last post, “Men without Work,” I present Nicholas Eberstadt’s data that a significant part of the problem is the very large number (9.5 million) of prime working age (25 – 54) men who are unemployed and not looking for work.
Statistically, such men are likely to be un-workers if 1) they have no more than a high school diploma, 2) are unmarried and without dependent children, 3) are not immigrants and 4) are African American.
Two other relevant factors are 1) the huge increase in employment for prime working age women, from 34% in 1948 to 70% in 2015 and 2) the very high male arrest and incarceration rates for blacks and those without a high school diploma.
Obviously, it is highly detrimental to society to have such a large number of men who are idle during their prime working years.
Here are several ways to address this problem:
Revitalize America’s job-generating capacities. More businesses have closed than opened in each year since the 2008 financial crisis. Furthermore, the growing regulatory burden is not a recipe for encouraging entrepreneurship.
Reverse the perverse disincentives against male work embedded in our social welfare systems. The Earned Income Tax Credits should be extended to single adults without dependents. Eligibility for disability income should be tightened considerably.
Come to terms with the enormous challenge of bringing convicts and felons back into our economy and society. The huge increase in incarceration rates in recent years has coincided with a dramatic drop in rates for both violent crime and property crime.
Conclusion. One good way to speed up economic growth is to put more unemployed prime working age men back to work. There are several very concrete steps which can be taken to do this.
The CATO Institute has just released a new study “The Work Versus Welfare Trade-Off: 2013”, which analyzes the total level of welfare benefits on a state by state basis. The authors, Michael Tanner and Charles Hughes, show that welfare pays more than a minimum-wage job in 35 states and, moreover, in 13 states, it pays more than $15 per hour. The authors recommend that Congress and state legislatures strengthen welfare work requirements, remove exemptions from working and narrow the definition of work. Also many states should consider shrinking the large gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.
Clearly welfare benefits as well as disability payments, through the Supplemental Security Income (SSI) program of Social Security, have grown too large and have become a disincentive for many people to find a job. Getting something for nothing is a moral hazard which induces an attitude of entitlement and helplessness. It also causes the labor force participation rate to shrink and therefore hurts the economy.
Tightening up welfare payments and disability income are among the many actions
which Congress could take to speed up economic growth and lower government
spending. We need more representatives in Washington who understand that change is needed and who can advocate effectively for policies which will get this done!
In today’s Wall Street Journal the economist Alan Blinder writes, “The Economy Needs More Spending Now”, that the tax hikes and spending cuts agreed to in January and before are reducing GDP growth by 1.5% – 2% annually. Mr. Blinder claims that it would be easy to design a new fiscal stimulus package that adds 2% to GDP per year as long as it lasts. He also claims that a fundamental change like tax reform might only add a much smaller .2% to GDP per year although this much smaller annual effect would repeat indefinitely and therefore eventually amount to a large cumulative effect. This is a sensible argument as far as it goes but is incomplete.
In the last five years there has been almost $6 trillion in (deficit) stimulus spending, coupled with a $3 trillion quantitative easing program by the Federal Reserve. This represents an unprecedented fiscal and monetary stimulus to the economy by the federal government. And the result has been a tepid although steady 2% annual growth in GDP, much slower than usually follows a recession.
After all of this enormous stimulus, which is having only a meager effect, what makes more sense: to try even more stimulus or to try something different? What else is there to try? Immigration reform will boost the economy by drawing our 11,000,000 illegal immigrants into the main stream economy. Note that citizenship (amnesty) is not required to accomplish this, only legal status. Also, requiring many people receiving welfare (food stamps, disability benefits, etc.) to work would boost the economy by increasing the size of the labor force.
Broad based tax reform, greatly curtailing most, if not all, tax preferences, would be so attractive that it should not be put on a back burner, as Mr. Blinder suggests. In fact, completely repealing the ACA’s Employer Mandate, now that it’s been postponed for a year, would give a big boost to many medium sized companies for which required health insurance is a big impediment to growth.
The point is that there are many ways to boost the economy besides even more artificial deficit stimulus, whose effect would be at most temporary anyway, as Mr. Blinder suggests. It really is important to shrink our still very large annual deficits down to zero fairly quickly so that we stop adding to the huge burden which we have already placed on future generations. In other words, we can likely have stronger economic growth and fiscal restraint at the same time, the best of all possible worlds!
Earlier this month the economist Edward Lazear had an op-ed column in the Wall Street Journal “The Hidden Jobless Disaster”, pointing out that, even though the unemployment rate has been dropping for the past four years, the employment-to-population ratio has stayed stuck at 58.5%. This low labor participation rate means that many workers have dropped out of the labor force and stopped looking for work. In fact the disability rolls have grown by 13% since 2009 and the number of people receiving food stamps has grown by 39%. These disincentives help to explain why the proportion of long-term unemployed is still so very high at 37%.
The WSJ reported in April, “Workers Stuck in Disability Stunt Economic Recovery”, that the federal disability rolls have jumped from 7.1 million in December 2007, when the recession started, to 8.9 million today, which is 5.4% of the civilian workforce. This exodus to disability costs 0.6% of GDP, a sizable chunk when GDP is only growing at an annual rate of about 2%. Furthermore only 0.5% of federal disability recipients return to work in a given year compared to 20% for private, employer sponsored, disability recipients.
Two conclusions can be drawn from this data. First of all, the federal government should be much stricter in establishing and enforcing work requirements for all public welfare recipients, including those on disability. This should be noncontroversial but it won’t happen unless Congress and the President take the initiative and make it happen.
But even more important, our national leaders need to get far more serious about boosting the economy to get many more millions of the unemployed and underemployed back to work. Fundamental tax reform would help the most but targeted deregulation and expanded foreign trade would also help a lot. The Republicans have the strongest, free market, argument on this basic and high priority issue and they should hammer away at any Democrats, including the President, who are dragging their heels on it!