American Elephants

Why is Economic Freedom So Hard To Understand? by The Elephant's Child

John Taylor Economisat

John B. Taylor is a professor of economics at Stanford University. He is also a fellow with the Hoover Institution, and has served several presidents on their Council of Economic Advisers. He listed, recently:

The Principles of Economic Freedom

  1. predictability — people want to know what’s coming. In a democracy you can’t just order this fixed.
  2. rule of law — we bailed out Bear Stearns, Chrysler, did special favors for Fannie & Freddie with regulatory capture.
  3. incentives — the price system provides incentives — prices go up — people buy less — are what motivates people. Keep it simple.
  4. the free market system — it works.
  5. a limited role for government — cost/benefit analysis, usually limited makes for sensible deciding.

Not complicated. Just a few simple bits of common sense. If you have time this weekend, do watch Dr. Taylor’s speech at the Center for Ethics on the “Ethics of Wealth ” series. I know, I know, it’s long, but you would pay a hefty fee to attend, or for a college class at Stanford., and here it’s free. A better deal than your neighborhood cineplex.

It is the Number of People Who Are Employed That Matters. by The Elephant's Child

We wait breathlessly for the monthly unemployment figures, with not very much understanding of the numbers, and wait for someone to explain them to us. The party in power will attempt to see them through rose-colored glasses, the out-party, sure that they would do better, will skip the rosy figures. They portray the unemployment number against what the economists said they expected. Unemployment rose slightly to 7.6% as 175,000 jobs were added. Save your cheers.

The industries with the strongest employment growth in the last month were temporary help agencies, and food services. This represents businesses switching people to part-time employment in response to ObamaCare requirements that they must provide health care for anyone who works more than 30 hours. So a lot of that is the people who were reduced to 28 hours at one establishment, adding another 28 hour employment at another establishment. So was there actually any improvement at all? Sorry, No.

The number of jobs added in April were revised downward from the previously reported 165,000 down to 149,000. March’s numbers were revised upwards by 4,000. The problem for the May numbers, besides possibly all being the same people compensating for a lost part-time job with another part-time job. The civilian labor force increased by 420,ooo in May. If the labor force gets bigger than the increase in the number of jobs, then nothing has improved at all. To actually make progress, more people need to find jobs than the number of new people added to the labor force. Unemployment rate for adult men (7.2%), adult women (6.5%), teenagers (24.5 %), Whites (6.7%), Blacks (13.5%), Hispanics (9.1%), and Asians (4.3%).

Edward Lazear, chairman of the president’s Council of Economic Advisers from 2006-2009 is a Hoover Institution fellow and a professor at Stanford’s Graduate School of Business. Writing in the Wall Street Journal, he says that the unemployment rate is not the best guide to the strength of the labor market. The Fed and the rest of us should be watching the employment rate. What’s important is the proportion of the population that is working, not the proportion that isn’t.”

While the unemployment rate has fallen over the past 3½ years, the employment-to-population ratio has stayed almost constant at about 58.5%, well below the prerecession peak. Jobs are always being created and destroyed, and the net number of jobs over the last 3½ years has increased. But so too has the size of the working-age population. Job growth has been just slightly better than what it takes to keep the employed proportion of the working-age population constant. That’s why jobs still seem so scarce.

The U.S. is not getting back many of the jobs that were lost during the recession. At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards. …
Why have so many workers dropped out of the labor force and stopped actively seeking work? Partly this is due to sluggish economic growth. But research by the University of Chicago’s Casey Mulligan has suggested that because government benefits are lost when income rises, some people forgo poor jobs in lieu of government benefits—unemployment insurance, food stamps and disability benefits among the most obvious. The disability rolls have grown by 13% and the number receiving food stamps by 39% since 2009.

At the present slow pace of job growth, it will take more than a decade to get back to full employment as defined by prerecession numbers.

Incentives matter. A fact that has escaped this administration entirely. I’d bet that any one of you could come up with several suggestions for immediately improving the Labor market, and they would work too. Instead we are stuck with the Hidden Jobless Disaster.


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