By Fr. George Welzbacher
August 22, 2010
While the proper focus of a Pastor's Page ought to be first and foremost the defense and exposition of the saving truths taught by Christ, nevertheless, when millions of Americans cannot find the work that would enable them to feed their families, a discussion of ideas that could contribute to the correction of so intolerable a situation seems to me, in the interests of charity and justice, to be matter that is appropriate for a column of this kind. So here goes!
Nearly everyone will concede that, apart from government jobs, the chief source of new employment is the small, start-up business, an enterprise that seeks to serve a special niche in the hope of making a modest profit. But to get started such an enterprise needs capital. And if the would-be entrepreneur lacks the capital himself, he will have to seek it from someone who is able to provide it. But the banker or investor who could provide this capital will be unlikely to do so unless he thinks it likely that in so doing he will not lose his money and that he will with a reasonable probability make an additional profit besides. When, however, the costs of doing business are perceived as likely to rise STEEPLY in the VERY near future because of plausible predictions of an imminent major increase in TAXATION together with the anticipated burden of multitudinous new regulations from newly created government agencies, the foreseen profit will SEEM SO UNCERTAIN AND IN ALL PROBABILITY SO DIMINISHED as to make the proposed investment insufficiently attractive to compensate for the inevitable risk. The smart decision in that event would be NOT TO INVEST UNLESS AND UNTIL THE PROFIT-KLLING (AND THUS JOB-KILLING) CONDITIONS HAVE CHANGED FOR THE BETTER. So the enterprise in question remains just somebody's dream. And from a mere dream you can't draw a paycheck.
This in brief is what has stalled our economy: what chairman of the Fed Ben Bernanke recently described as an "unusual" level of "uncertainty". And conditions will not improve unless personal and corporate taxes are reduced, or at the very least are maintained at their present level, and an oppressive new burden of massive regulation is cut back, thus restoring to potential investors some genuine hope of turning an attractive profit. In other words the tax- reducing and investment-encouraging strategy that worked for Jack Kennedy and Ronald Reagan when they were faced with a harsh recession can work again, since this strategy takes into account the realities of human nature.
In statistical confirmation of this basic insight of common sense may I share with you a brief report written by a vice president of the American Enterprise Institute, Mr. Henry Olsen.
* * * * *Unemployment. What Would Reagan Do?
By Henry Olsen: The Wall Street Journal
Tuesday, August 10, 2010
Friday's grim labor report is the latest confirmation that our economy is NOT recovering. A loss of 131,000 jobs and a stagnant 9.5% unemployment rate are bad enough. But a deeper look-at the little-known civilian employment- population ratio-shows how hard it's going to be to pull out of our crisis, and why ... prevailing policies are unlikely to do the job.
In contrast to the better-known unemployment rate, which measures the percentage of working-age Americans who are actively seeking jobs but do NOT have one, the civilian employment-population ratio measures the percentage of working-age Americans who HAVE a job, whether they are seeking one or not.
This distinction matters because the state of an economy affects whether someone looks for a job at all. Bad times discourage potential workers from SEEKING jobs; boom times encourage marginal workers to seek them. As our population grows, we have more working-age adults who need work. A growing economy needs to REPLACE the jobs we have lost AND ADD NEW ONES to accommodate these added potential workers.
Looking at this ratio, America is suffering its largest drop since World War II. When the economy was at its Bush-era height, in 2007, a little over 63% of adult Americans had jobs. Friday's report shows that only about 58.4% do, a decline of nearly five percentage points. While the unemployment rate remains steady at 9.5%, the employment-population ratio continues to FALL each month. In April it was 58.8%, in May 58.7%, and in June 58.5%.
Since America has about 238 million noninstitutionalized civilian adults of working age, this decrease means that we have nearly 12 million fewer jobs today than we would have if the employment-population rate were still at its 2007 level of 63%.
No other recession in the past 60 years saw such rapid job destruction in either absolute or percentage terms. In the 1979-82 recession, unemployment topped out at a higher rate, 10.8%, but the employment-population ratio declined by only three percentage points, to 57% from 60%.
History also delivers sobering news on how long it might take to recover our economic health. There is only one instance since World War II of the U.S. economy increasing the employment-population ratio by five percentage points in a decade: the recovery that followed Ronald Reagan's tax cuts in 1983.
In the mid-1980s, the employment-population ratio RECOVERED LESS THAN TWO YEARS AFTER HITTING BOTTOM. The momentum continued for the rest of the decade fueled by the 1986 tax reform that LOWERED the top marginal income tax rate to 28%, allowing America to employ the millions of late baby boomers, women and immigrants who sought jobs. By the time the boom ended in 1990, the employment ratio had rocketed to 63 % from 57%.
An administration that pursued job creation-not ideology-would note this history and see how individuals and companies can create wealth and jobs quickly IF they have the right incentives. Instead we have POLICIES THAT ARE UNCERTAIN and portend HIGHER taxes and GREATER regulatory burdens. This is causing business and consumers alike to RESTRAIN spending, creating a drag on the economy too great for any government stimulus to reverse.
Someone once said that we should never let a crisis go to waste. In this historic employment crisis, we have no time to waste. Rather than tear down Reaganism, our leaders in Washington should heed its lessons and UNLEASH THE PRIVATE SECTOR that ALONE can pull us out of our doldrums.
* * * * *