WASHINGTON, June 3, 2016 — President Obama has begun a victory lap, claiming the economy under his direction is doing very well. Growth has stalled, however, and the jobs numbers are weak. Today’s dismal May employment numbers, reported by the U.S. Bureau of Labor Statistics (BLS), underline that weakness.
Obama will be the first president since GDP growth data have been recorded to fail to enjoy even one year of economic growth above 3 percent.
Most economists would say that the answer to our economic problems is to institute policies that encourage economic growth. Under President Reagan in the early 1980s and President Clinton in the late 1990s, lowered tax rates led to periods of four years or longer of economic growth above 4.5 percent annually.
Under President Obama, growth has averaged about 2 percent annually.
The latest job report continues the lackluster pattern of the past seven years of the Obama Administration. Only 38,000 jobs were created in May after about 160,000 jobs were created in April and about 215,000 jobs in March. In the last four quarters, economic growth has dropped from 3.9 percent to 2 percent to 1.4 percent to 0.8 percent. While most economists forecast growth in the 2 percent range for the current quarter, the overall dismal growth pattern has created precisely the economic problems Obama vowed to fix.
Real economic growth would increase the demand for labor, create more jobs and generally increase wages. Better growth would also reduce the record number of Americans receiving government assistance, reducing government spending and increasing income tax revenue to help shrink the still-huge federal government deficit.
Growth would also provide opportunity for American workers and would provide more entry-level jobs for unskilled workers. In the end, income inequality would be reduced as those at the lower end earn their way out of poverty, a considerable improvement over Obama’s “handout” approach, which traps whole families and even generations in poverty.
Under Obama’s economic policies—which were always geared toward curing perceived social injustices rather than trying to stimulate economic growth—median family incomes have fallen by about $1,600 annually. During the Reagan years, they rose by almost $5,000. For African-American families, the loss of income is even greater.
America desperately needs policies that encourage economic growth and add well-paying jobs. Such results can be supported rather easily. That’s because real, sustainable growth comes primarily from business expansion, contrary to the views of Obama and Hillary Clinton, both of whom believe that business does not create jobs: government does.
Business expands when it is profitable to do so. By raising the tax rates on the highest income earners who create the capital needed for growth and by raising the capital gains tax from 15 percent to 23.8 percent, President Obama has reduced the incentive for business to invest. It is no wonder that business investment remains consistently weak.
By contrast, President Bill Clinton reduced the capital gains tax rate from 28 percent to 20 percent, pared back government regulations, made it more difficult to collect welfare and finally declared the era of big government was over. Economic growth exceeded 4.5 percent annually for Clinton’s entire second term in office.
Counterintuitively, the U.S. unemployment rate fell from 5 percent to 4.7 percent last month, even though only 38,000 new jobs were created. How did that happen? It happened because hundreds of thousands of workers dropped out of the labor force and are no longer counted as being unemployed. Today we have a labor force participation rate of 62.6 percent. Prior to the Great Recession, the rate was 66 percent. That means about 8 million adults have given up looking for work.
Obama’s policies encourage marginal workers to stay out of the labor market. Perversely, Obama offers them incentives to do so, including increased welfare, increased food stamps and free health care. Many marginal workers find it is better to collect government assistance checks than to seek a job.
There are two basic inputs into the U.S. economy: Capital and Labor. Those inputs, along with variables like education level, entrepreneurship, natural resources and technology all help determine the level of output. President Obama has reduced the input from labor by encouraging workers to stop working and he has reduced capital formation by raising tax rates on the highest income earners as well as raising capital gain tax rates.
It is simply not possible to enjoy a sustained period of solid economic growth when Obama’s policies effectively reduce the basic, customary inputs into the American economy. Unless things change, Americans will remain trapped in what liberal newspapers like to refer to as the “new normal” of 2 percent annual growth.
There is nothing normal about an anemic 2 percent growth rate. It is, in fact, abnormally low. But you won’t see that in the news.