↓ Freedom Centers

A Road Paved With Good Intentions

by Kenneth BloomquistWeak Economy

Standing before an audience of college students, President Obama remarked that “As Americans, we can and should be proud of the progress that our country has made over these past six years. This progress has been hard, but it has been steady and it has been real. And it’s the result of the American people’s drive and their determination and their resilience, and it’s also the result of sound decisions made by my administration.” These remarks sound more defensive than confident. The President asserted that Americans should feel proud of the modest economic gains his administration frequently cites, but given that over half of Americans still consider the economy to be meandering through a recession it seems they have overwhelmingly rejected his outlook and chosen to remain humble instead.

Perhaps they’re being overly pessimistic? In the President’s defense, the metrics commonly used to measure the duration of recessions do indeed place the end of the Great Recession in 2009. Since then, GDP has risen slowly, but steadily, at an adjusted rate of just over 2% per year. The unemployment rate has fallen from its 2009 high of just under 10% to just under 6%, and new jobs are being created at a pace which is improving with time. And yet despite the graphs and charts, Americans refuse to be optimistic no matter how often they are told to be. The economy as described in press conferences doesn’t seem to be same one which most Americans live and work in, where family and friends remain unemployed or underpaid, where they have been passed over for raises, and where there just isn’t enough income leftover to save. Americans may not all have advanced economics degrees, but they are intuitively aware when times are good and when times are bad, and they remain skeptical even when bombarded by a steady stream of rose-tinted statistics. 

And they have good reason to be skeptical. Despite a historically unprecedented $830 billion stimulus bill and a $7 trillion expansion of the national debt, median income for American households has remained stagnant since 2008. GDP growth has never recovered to pre-recession levels. Unemployment has fallen, but this is largely because the labor participation rate has dropped to the lowest levels since 1978 as working age Americans have given up trying to find jobs. Among those who have found employment, millions are working part time or far below their qualifications for economic reasons. When placed under the microscope, this touted economic “recovery” is a mirage. But why has it fallen so short of expectations?

Some of the sluggishness is undoubtedly due to factors unrelated to the Great Recession. Americans are getting older, and less young people are entering the workforce even as the number of people retiring from it climbs higher. That means less output from the labor force, and less spending from households as the number of people receiving social security rises. This is a trend we’ve have seen coming a long time, and perhaps just as the country has started climbing out of recession it’s also started to feel the extra weight of demographics. But demographics alone can’t account for the entirety of the economic malaise Americans have been mired in. Unfortunately, much of it has been self-inflicted poor economic policy.

To understand why, step back in time for a moment and remember the panic which had seized the public mindset at the time of the financial crisis. The shock of the 2008 recession was so severe that Americans – and their elected leaders – felt compelled to take drastic measures in order to right the nation’s economic ship. The risky practices of a few in the financial sector had endangered the economic livelihood of the rest of the country, and Americans were understandably upset that a crisis of such magnitude could be precipitated by a few irresponsible actors.

But while moderate voices called for targeted regulation, Democrats (fresh off their election victory) took the widespread public discontent as a mandate to more aggressively assert control over the marketplace and expand social safety nets. The crisis had economically displaced millions of Americans, and so they chose to reach out and give relief to those most hurt by the disaster. Certainly for many of them, it was an act undertaken with the best of intentions. Of course, there is that saying about roads paved with good intentions and the dubious places they can lead.

Coming out of such a painful downturn, this seemed like the responsible thing to do. If the government could be used to regulate away risk to protect Americans, why shouldn’t it? If someone loses their job, why shouldn’t they receive more generous unemployment benefits? Or for that matter, why shouldn’t they more easily qualify for disability payments, have mandated higher wages, or receive access to better healthcare through government subsidies?

In short, because dependency is not growth. And whether directly or indirectly, that is exactly what each of these initiatives promotes: a dependency on government provisions. The President’s economic recovery is one designed to mitigate the pain of recession by extending financial aid in various forms to an ever-expanding number of people. In effect, the government is being used a magical piggy bank, ready and eager to correct any cosmic or economic injustice it finds by reaching into bottomless pockets and signing checks that never bounce.

Lost your job? The government will provide welfare for you, and more generously than ever before. Can’t get food on the table? The government has enrolled over 15 million people on food stamps. Not earning as much as you want? We’ll artificially raise the minimum wage and make sure you get more on your paycheck. And now, it’s simpler than ever to qualify for some sort of disability compensation, too. And if you have an employer, we’ll even require them to offer you the health care you need.

Of course, there is nothing magical about any of these things or where they come from. Contrary to what liberals and the politicians who empower them believe, nothing is free. In this dismal world we call reality, that magical piggy bank never runs out of money because it never had any money of its own to begin with; all of it comes from the taxation of other Americans. As it turns out, it’s very easy to be generous with someone else’s money, and in that regard generous is exactly what this administration has been. Between medical services and economic assistance, more than half of all Americans now receive some form of government benefit, which is more than the number of people employed in full-time jobs.

And has this taxpayer-funded “generosity” been successful, as the President boasted in his speech? That depends largely on how you define “success.”  If it means that people without work are better provided for, or that people with low income are receiving assistance, then yes, these programs have met with some success. But is an increase in the number of people who require government assistance to pay their rent or feed their families really something to be proud of? When did the measure of success become how well the poor are sustained in poverty instead of how well they are helped to escape poverty? Are prospects really so dim?

Things certainly aren’t much brighter for employers. It’s ironic that caretaker legislation designed to protect the worker is making it more difficult for him to find work. Take the Affordable Care Act, the Obama Administration’s flagship legislation, as an example. Once again, the endeavor’s cause was noble: insuring Americans to make healthcare more affordable has historically been a goal of both Democrats and Republicans alike. And to its credit, the ACA has insured a large number of people. The means by which Obamacare accomplishes these goals, however, have been decidedly damaging to employers and may have cost more than it’s worth.

The bill is a leviathan of ponderous regulations which need to be deciphered and adhered to, giving business owners yet another hurdle to clear in order to accept more employees – a hurdle which many of them prefer to avoid entirely by hiring fewer workers or cutting working hours in order to escape the law’s demands. This is especially true for the small businesses which employ the majority of Americans, 70% of which have stated in surveys that the ACA would make it more difficult to grow. Unlike larger corporations, many small businesses don’t have the time or resources to allocate to yet another regulatory checklist, and don’t have the profit margins to provide what the law requires of them. When faced with the ultimatum to comply or be fined, they comply by scaling back their employment or employee benefits.

What all of these failed initiatives in government-administered charity should teach us is this: the government does not generate wealth. Every job the government creates is another job closed, every dollar it spends is a dollar taken from a paycheck or savings account, and every project it undertakes is an entrepreneur’s lost opportunity. And this will not change, no matter how many times or in how many fashions it shuffles money from program to program, from pocket to pocket. The growth of government and its services will always come at the expense of the growth of the economy.

Now this is not to say that the government doesn’t have a vital role in the stewardship of the economy. Government is instrumental in protecting wealth and providing security through militaries and police forces, mediating disputes through a legal system, and providing those public goods and services which markets cannot effectively provide. But crucial as these functions are, even they are just reallocations of wealth made by others. Sometimes – as in the case of social safety nets – these reallocations are necessary in order to preserve economic and social stability. There is, however, a difference between an economy which is merely stable and an economy which is prosperous.

If Americans want a prosperous economy, they need to remember that there is only one force that truly creates wealth: people in the marketplace. It is people in the marketplace which create value by supplying those goods and services society demands by the most efficient means possible. Unlike government initiatives, they create, innovate, and invest in projects designed to reap economic rewards instead of political rewards. And it is the proliferation of these value-adding activities which allow an economy grow instead of merely permitting it to endure.

So how can such a growth economy be promoted? Quite simply, actually. The means of doing so isn’t some arcane mystery. If a dollar in the hand of an individual is worth more to society than a dollar in the hand of the government, then taxes must be lowered to keep as much money in the peoples’ hands as possible. This same concept extends to corporate income taxes, which only further stifle the ability of businesses to expand.

Next, the burdens on small business employers need to be lifted by repealing or at least simplifying federal regulations on their practices. This is especially true of the Affordable Care Act, but extends to all aspects of business. Commerce must as simple as possible for it to achieve its greatest dividends.

Finally, the government needs to let the market determine prices and wages fairly, through the proven mechanics of voluntary exchange and competition. Subsidies that distort the real value of products or give unfair advantage to chosen producers waste massive amounts of wealth, imposing hidden costs on society. Likewise, flirting with an increased minimum wage will only reduce the number of jobs the economy can offer those of a lower skillsets, and therefore force even more people to accept government aid in place of a wage.

If any of these measures sound familiar, it’s for good reason; Republicans have fervently pursued these fundamentals for decades. So fervently, in fact, that perhaps their zeal to steer Americans back towards a path of fiscal responsibility has made them seem like angry bean counters, too miserly to care about the plights of those which have fallen on difficult times. And given the harsh economic circumstances the last 6 years have imposed on so many Americans, it is little wonder voters have been willing to give the liberal architects of the Democratic Party a chance to construct their gentler model economy. It is up to Republicans now to win the narrative back.

They must do better to explain to Americans that they have been given a choice between two economies. On the one hand sits the President’s economy: a lethargic system weighed down by the follies of a government with more benevolence than wisdom. This economy is one which secures votes by tethering people to its ship as dependents, proclaiming itself the national caretaker in order to justify the expansion of government. This is an economy of stagnation, and it lies down a road paved with good intentions.

On the other hand is an economy in which jobs are created not because Congress used tax dollars to conjure them up, but because profitable employers need labor and talent. This economy provides opportunities instead of subsidies, helping Americans earn their own wealth instead of sharing someone else’s. Wages rise not because laws are enacted to force employers to pay more, but because the productivity of workers increases along with the value of their work. Poverty is reduced not because welfare is more generous to those in need, but because there are fewer people in need of welfare. This is an economy of growth, and it’s been six years waiting.