WASHINGTON, May 1, 2015 – Last November President Obama assured the American people that we have finally “turned the page” on slow economic growth. For the six months prior to his announcement, the economy had been growing at about a 4.5 percent annual rate. Since that announcement, the economic growth has stalled.
The U.S. Bureau of Economic Analysis just reported that economic growth in the first quarter of this year was almost zero (actually .2 percent). This followed a poor showing in the fourth quarter of 2014, when growth was only 2.2 percent. For all of 2014, economic growth was less than 2.5 percent, which is about the average growth rate under the Obama administration’s economic recovery.
The importance of economic growth in this post-Great Recession U.S. cannot be stressed enough. Normally after a severe recession, economic growth accelerates. For example, following the more severe recession in 1981 economic growth averaged about 4.5 percent during the four-year recovery.
President Obama’s policies continue to serve as a drag on economic growth.
Economic growth would solve all our current economic problems. The number of employed people would increase dramatically, thus reducing the number of people seeking government assistance. Growth would provide opportunity for college graduates to find meaningful employment instead of the underemployed condition so many are forced to endure today.
Growth would increase the demand for labor at all levels, which would, in turn, raise wage rates. Minimum wage workers would see their wages increase without the need for any legislation. For high school graduates who enter the work force and for those employed in the trades, economic growth would provide new opportunities to reduce the high unemployment rate that currently affects this demographic. In addition, the higher wage rates would incentivize more of the workers who left the labor force to re-enter, thus increasing the labor force participation rate.
Prior to the recession, about 67 percent of the adult population was either working or actively seeking work. Today that number is under 63 percent, meaning that about 6.5 million adults are no longer part of the labor force. With fewer people contributing to the economy, it is difficult to grow the economy and to raise the standard of living for Americans.
How do we fix this?
President Obama has primarily been concerned with improving the welfare of the lowest 15 percent of income earners. He has expanded welfare and food stamp programs that help those at the bottom. He has provided low-cost or no-cost health insurance for that group. He has pushed to increase the minimum wage rate through legislation or executive orders rather than through economic growth.
Since the president’s highest priority has been to help the poor rather than to help the majority of Americans, his policies continue to put a drag on the nation’s economic growth. If we understand that real growth comes from the private sector and not the government, his policies are counter-productive.
The president should be reducing tax rates for the small and medium size businesses that have historically been proven to provide the vast majority of new jobs. He should be reducing over-burdensome regulations to make it easier for businesses to expand.
He should be reducing costly regulatory burdens on businesses as well. Instead, he now requires most businesses to pay for health insurance for each employee or pay a fine that could be as high as $3,000 per worker. Starting next year this requirement will apply to all businesses with at least 50 employees.
Starting in 2018, companies that offer their employees high-quality health plans will have to pay a 40 percent tax on these “Cadillac” plans. That means those profitable businesses will either have far less money to spend on expansion, or they will cancel the high quality plans and offer their workers less comprehensive health insurance coverage. Either way, this action places a burden on business.
It seems the president was never really concerned with growing the economy even in 2009 and 2010, when his party had a majority in the House of Representatives and a super-majority in the Senate. By making income transfer programs his top priority to help the poor, he has put such a heavy drag on economic growth that the economic stagnation we have witnessed for the last six years is likely to continue well into the future, unless the newly Republican-controlled Congress can pass pro-growth legislation and get it past this president’s veto pen.
With the president promising to veto any legislation that reverses his social agenda, however, Congress will have a difficult time making a pro-growth agenda our government’s national policy. Unfortunately, that means we may be stuck in this slow-growth economy until a new president takes office in January 2017.