Regardless of what you hear from the professional thieves in Washington D.C. and the talking heads of the mainstream media, there will be no economic recovery. Economic recoveries do not “just happen”, they are caused. Cyclic economic theories do not imply that the cycles occur without human intervention, they merely show that humans tend to behave like herd animals. We all tend to do the same things together until it causes significant negative consequences. We create the cycles, the cycles do not occur without our causing them.
Once you accept that an economic recovery can only happen as a consequence of human action, you must define what actions lead to economic recovery. Fortunately, this is a fairly well understood area of economic study.
Hiring
We currently have an official unemployment rate of 9.1%. This number is almost useless, because it does not include the 8.5 million Americans who are currently working part-time because they cannot find full-time jobs, the 2.2 million Americans who are unemployed but have not looked for work in the last 4 weeks, and the 822 thousand Americans who are unemployed but have given up on ever finding a job.
The first step towards economic recovery must be raising the number of productive workers in the economy. Unfortunately, smart business people are avoiding hiring workers in the United States. Why? Because the cost of compliance with government regulations makes hiring Americans uncompetitive.
The Minimum Wage
Minimum wage regulations cause hiring to be reduced and unemployment to go up. Ignoring every known principle of economics, President Obama increased the minimum wage in July of 2009. This deepened “the great recession” and hurt people at the bottom of the economic ladder the most.
Corporate Income Taxes
Corporations do not really pay income taxes. They may appear to pay them, but all that really happens is that they pass those costs along to their customers. In a world without global trade, corporate income taxes have very similar effects to individual income taxes, except that they are more hidden from eligible voters.
In a world where global trade is the norm, corporate taxes raise the cost of American goods and make foreign goods more affordable in comparison. The United States has one of the world highest corporate tax rates, which is a huge part of the reason we have one of the worlds worst trade deficits. If we got rid of the corporate income tax, American made products would once again be price competitive — both here and abroad.
Personal Income Taxes
Personal income taxes discourage working and encourage spending. Politicians and pundits alike marvel at Americans pathetic personal savings rate. They shouldn’t. Americans are doing exactly what an economist would expect them to do.
Capitalism requires capital. Capital comes from savings. Savings is one of the true creators of wealth. If we did away with personal income taxes, Americans would be encouraged to save money. If we replaced the personal income tax with a national sales tax, Americans would be discouraged from spending money, doubling the positive effect.
Government Regulation
Federal regulations cost the American people approximately $1.1 trillion per year — and those numbers are from 2005. $1.1 trillion dollars is more than Americans pay in federal income taxes. This government micromanagement represents an incredible, and usually hidden, drain on the economy.
Thomas Jefferson wrote “I am for a government rigorously frugal and simple. Were we directed from Washington when to sow, when to reap, we should soon want bread.” It appears that President Jefferson’s projections are coming true.
The Size of Government
Every dollar in the “government economy” is another dollar that is not in the productive economy. Every dollar that is invested in a government building is a dollar which cannot be invested in a manufacturing facility, a farm building, or a productive office building.
Every potential worker who is pushing paper for some government department instead of producing something of value to the market is a burden on society — a burden on those people who are producing value. The shrinking productive work force is now supporting 4.3 million federal employees and 15.9 employees of state and local government. These government employees are paid significantly more, on average, than their peers in the private sector. This means that even more private sector workers are required to provide funding for each public sector employee.
The Burden of Government Debt
The U.S. national debt is now $14.4 trillion dollars. That is $129,431 per taxpayer. Dollars that are spent to pay interest on the national debt cannot be invested in the economy. They cannot be used to hire people, to develop new technologies, or to invest in plants and equipment.
The Retirement Age
The retirement age was set to 65 in 1938. Since that time, the average lifespan of American’s has increased sixteen years, but the retirement age has only been adjusted by two years. This means that more current workers are needed to support the larger number of retired workers — but the government is making it difficult or impossible for businesses to employ Americans.
Why There Will Be No Economic Recovery
Take a look at the items above and compare it to what American politicians are currently willing to do. American politicians are not willing to shrink the size or scope of government, reduce corporate and personal income taxes, or raise the retirement age. They simply will not do these things. Until American politicians are willing to take these proactive steps to recovery, there will be no economic recovery.
