WASHINGTON – The US unemployment rate is now below 6%. This should be good news. It looks as if we are finally going back to “normal”. The economy is growing. More people are getting jobs, the number of people filing for unemployment benefits is shrinking.
The real numbers
For sure, more employed Americans has to be good news. And yet, if we look below the surface, the picture is far less inspiring. The unemployment rate is going down in part because many would-be workers dropped out, and therefore they are no longer counted. Besides, most of the new employment is in low-paying or part-time jobs. Millions of americans now holding part-time jobs would really like a full-time position, but they cannot get it. Likewise, many who used to be unemployed now found a new job that pays less than the one they had. Bottom line: notwithstanding higher employment, incomes are stagnating.
Fewer Americans in the work force
Furthermore, the percentage of the overall US working age population now actively employed has gone down. it used to be 66% in 2008 and it is now only 62.7%. As David Stockman noted in a good piece in his blog, www.davidstockmancontracorner.com, this is a 36 year low. And this is really alarming, because this means that while the US population grows, the American economy is unable to keep millions of otherwise able-bodied people busy.
Mediocre education, low skills
Add to this the inability to raise the quality of US public education. The economic implication of this systemic failure is that millions of young Americans leave school with few, if any, marketable skills. (In many communities they do not even finish school, meaning that they will become semi-illiterate, unemployable adults).
Hard to believe that lacking good or even decent qualifications these young people will be able to get into promising careers. These under educated young Americans will simply increase the competition for low paying, often dead-end jobs.
Of course, America is doing a lot better now than in 2009, at the bottom of the disastrous recession. But we have not fully recovered. Our economy grows, but only a little. Our average GDP growth is now around 2%. The post-war average used to be 3%. This is 30% less growth, year after year. This is a major, systemic change for the worse.
Better than Europe
Many optimists observe that compared to other Western nations America is doing really well. And this is true.
The Eurozone has feeble growth, with some of its members (Italy for example) in recession. The Unemployment rate is almost double, with absurd peaks of 20% or more in Spain and Greece. In Italy youth unemployment is above 40%, about 60% in the South.
Japan is struggling
Japan is experimenting with “Abenomics”, a shock therapy aimed at boosting the vitality of its dormant economy. But there are immense obstacles, starting with a monstrous public debt, now at 240% of GDP, and a steady demographic decline. Japan is fast becoming a country of retired old people. Hard to believe that a shrinking number of active workers will be able to boost output while financing the national debt, plus the pensions and health care benefits of armies of needy retirees.
The West is not doing well
All in all, if we look at North America, Europe and Japan, the pillars of the post-war Trilateral World, America is doing a lot better than all the others. But this is not saying much. The fact is that much of Europe and Japan are in slow but steady terminal decline.
From enterprise to welfare
We do not know why the once optimistic entrepreneurial West lost altitude. But at least part of the explanation is in the political choices made long ago to create vast, horrendously expensive and in the end counterproductive social safety nets.
The original objective was noble: protect and aid the poor. But most of these welfare programs are about subsidies, income support. They are not about giving people new skills that allow them to get back into the work force and sustain themselves. In fact the free aid that mostly provides additional income has created a perverse disincentive to get out of welfare. “Indeed, why make any effort, when I can still get by, while doing nothing?’
The combined cost of subsidies and entitlements
The net result is that a comparatively smaller working society subsidizes millions of people who have neither the skills nor the incentive to become active. And all these subsidies costs a lot.
Add to this now established feature of welfare programs a broad demographic decline, (most of Europe is going the way of Japan), coupled with millions of retirees living longer and therefore “costing” more, and you understand the source of ballooning deficits that add to already large national debts.
Simply stated, the Western economies are unable to pay for the growing combined cost of welfare, health care and pensions. Given the political unwillingness to cut and/or modify these programs, the only “solution” has been to run larger and larger deficits and borrow the difference.
Systemic issues unaddressed
And this is pretty much where we are today. As noted above, America is doing a lot better than Europe or Japan. But we are doing far worse than we used to. The US trend is still about slow growth, stagnant wages and high federal deficits due to out of control entitlement programs.
While we should celebrate unemployment below 6%, we should also recognize that we have not even begun to address the systemic problems that undermine our future.