As Obama was touting himself as our economic savior during the Democratic Nation Convention, explaining:
“After the worst recession in 80 years, we fought our way back. We’ve seen deficits come down, 401(k)s recover, an auto industry set new records, unemployment reach eight-year lows, and our businesses create 15 million new jobs,”
You would think we would have unprecedented growth, not the tepid, wet blanket economy that exists in reality. A wise man once proclaimed that you are entitled to your own opinions but not your own facts, and the fact remains that this is the worst recovery from a recession since World War II. The “deficit cuts” claim—routinely used to create confusion with debt—were due to astronomically high record deficits created by President himself and Congress in FY 2009. He did not inherit these deficits from the Bush administration as we have outlined on UA previously; they belong solely to him and his Party.
President Obama will most likely go down as the only President in the post World War II era to never preside over a 3% GDP growth rate through his entire term. That’s even more bleak considering most recessions are usually followed by a robust recovery, but for reasons I will get into here, this never happened under his watch.
Sure, unemployment has fallen, that is true, but it isn’t because of “15 million jobs created.” The number POTUS uses is measured against a point in time when the economy hit rock bottom in February 2010. Compared to the jobs peak in January 2008 (what it should be compared to), we’ve added only 5.6 million jobs as of April 2016. Throw in all the 15.8 million people during that time that reached the age of employment growing the labor supply, and the number is actually a negative. In other words, in context, the economy hasn’t been strong enough to even keep pace with population growth. This is in part why labor force participation is hovering around 38-year lows, and under-employment is also on the rise. People are unable to find full time high quality paying jobs. Those high paying pre-recession jobs are perhaps the greatest causality post-2008 financial crisis.
Also seldom mentioned is the precipitous fall in labor productivity over the last 5 years. Data released from the US Census Bureau in May shows that productivity growth has averaged a measly 0.4% per year over the past half decade, an astonishing 82% below the average for the prior 60 years! That’s as far back as the data goes.
Productivity level, or output, in an economy is pivotal in determining the standard of living in any economy. For example, if labor produces less, than there are less goods in the economy, and a lower supply of goods and services means rising real prices. This makes goods and services harder to obtain at the margins, disproportionately harming the poor. Any time the real prices of goods rise and wages remain stagnant, the poor are the ones that get slammed.
Coincidentally, under Obama, the amount of people in poverty has risen by 3.1 million people and 8.7 million more people are collecting food stamps. Hardly the success story his cherry picked numbers make this economic recovery out to be.
In more productive countries, the purchasing power is much higher than in less productive countries; lower production costs and higher outputs increase overall supply, lowering the real prices for goods and making them more accessible to all people, thus raising the standard of living. The idea is simple, the more products you produce in an hour’s time, the more you are paid and the more goods and services you can demand. It is production, not consumption that feeds the economic engine. One must first produce a good or service in order to subsequently demand goods and services from someone else. For example, the US has a 500% premium in purchasing power over Latin American Countries that have historically been less productive.
So what are the reasons for declining productivity?
One reason is economic regulations creating barriers to entry/exit raising costs and diverting resources away from where they are most productive. A recent study by the Mercatus Center calculated the costs of regulations (holding regulations constant at 1980 levels) to be at $4 trillion dollars over the last nearly 4 decades. That’s a lot of money pulled out of the economy for what could be less efficient uses. Prices, not political maneuvering, are the most efficient means of allocating scarce resources with alternative uses.
Another reason seldom mentioned, let alone explained, is the consequences from high levels of government debt. Federal borrowing reduces private savings, lowering the aggregate amount of capital in the economy dragging down the rate of new investments and wealth creation. This has a downward effect on wages for labor as it lowers overall demand.
Moreover, labor costs in the US are on the rise. This could be the corollary of steady market demand and a corresponding fall in labor productivity, forcing firms to hire more labor to make up for the loss of production.
The influx of low-skilled labor, primarily from South America, has exploded over the last half century. The Congressional Research Service reported to the Senate Judiciary Committee that between 1970 and 2013 there was a percentage increase of foreign-born population of 324.5% from 9,740,000 to 41,348,066, respectively.
A study by the U.K. House of Commons Education and Skill Committee concluded that “there is a positive correlation between skills and productivity.” Some of the reasons for their conclusions were as follows:
- A lower proportion of workers qualified specifically to carry out their current role
- More machine down time
- Slower implementation of new technologies and implementation techniques
- Too much managerial focus on routine tasks
Citizens in “high-immigrant occupations” have a much higher unemployment rate than citizens who work in jobs with a smaller percentage of immigrants. This displacement of more skilled labor with less-skilled labor can have a negative impact on productivity in the long and short run.
This President’s success and legacy depends on lies and half-truths, so we will most likely never get our fill of either from his administration or the his praetorian guard media. But this doesn’t change the facts or the truth, and with a little work it is not difficult to navigate the dense smoke and mirrors they supply and erect; they just count on you not doing any of the work.