What About the Rest?

I agree with two of the assertions made by John B. Taylor in his recent Wall Street Journal op-ed. First, that the Obama Administration has been satisfied with far too litte:

For years I and many others have argued that a return to the principles of economic freedom would convert this not-so-great recovery into a great one. But Washington has not seriously considered pro-growth policy—no tax reform to lower tax rates and spur hiring, no regulatory reform to scale back costly regulations, no new free-trade agreements, no entitlement reform to stop the debt explosion, and at best only a hint at monetary normalization to reduce uncertainty.

One reason: There is growing skepticism that these tried and true policies will boost growth rates. It is too late now, pessimists say. The economy missed the 6% or 7% 1980s-style growth at the start of the recovery, and it is impossible to make it up. Or even more pessimistically, an incurable “secular stagnation” plagues the economy with permanently diminished rates of return on investment and ever-increasing income inequality. Why bother with difficult reforms if they won’t make much difference? At least we’re doing better than Europe.

Not once in six years has the Obama Administration even put forward a plan to return to full employment. Blaming it on the Republicans is a lot easier than working for change but that’s the difference between running for office and doing the job.

And the Administration should pay more attention to the labor force participation rate:

As a matter of arithmetic, the growth of the economy equals employment growth plus productivity growth. Simply reversing the decline in the labor-force participation rate—it fell every year of the so-called recovery, to 62.9% in 2014 from 66% in 2008—would cause a 5% increase in employment, or 1% growth for five years. Adding about 1% for population growth from Census projections equals employment growth of 2% a year. The percentage of the working-age population that is working would thereby finally exceed 2009 levels, and the U.S. would begin seeing promising changes.

I wish Dr. Taylor had provided more suggestions for turning that around.

For the last two decades education policy has been the substitute for economic policy. At best that provides a solution for half of young Americans. What is to become of the rest? Are they to become permanent wards of the state?

For all of human history work has been more than just a paycheck. It’s been a source of purpose, meaning, and pride. What will replace that? Drugs? Facebook?