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Unemployment and the Debt Crisis Remain a Significant Threat
by John R.
With the turmoil in the Middle East, the rising tensions in Eastern Europe, and the immigration and border crisis in our own backyard, the political focus has shifted away from the economy. Policymakers are cheering what appears to be an “optimistic” job outlook as unemployment has fallen to 6.1 percent. In addition, a lower projected deficit this year is seen as a “victory” in the fiscal crisis. Unfortunately these are not victories for the economy. Although a lower deficit is indeed welcome news, the economy still faces a dangerous fiscal crisis, and unemployment is much worse than policymakers would like to admit.
Although the federal government is estimating that the unemployment rate is 6.1 percent the actual rate is much higher if those who have quit looking for work and those who are under-employed are taken into consideration. Mort Zuckerman, who serves as Chairman and Editor-in-Chief of U.S. News & World Report, described the true employment situation facing the nation:
Full-time jobs last month [June] plunged by 523,000, according to the Bureau of Labor Statistics. What has increased are part-time jobs. They soared about 800,000 to more than 28 million. Just think all of those Americans working part time, no doubt glad to have work, but also contending with lower pay, diminished benefits, and little job security.
Zuckerman notes that less than 50 percent (47.7 percent) “of adults are working full time,” and an estimated “2.4 million Americans have become discouraged and dropped out of the workforce.” The jobs that are being created are not high-paying positions and “low-paying jobs are gaining and now account for 44 percent of all employment growth since employment hit bottom in February 2010…” Zuckerman described the dismal situation when he wrote that “what we have is a very high unemployment rate, slow recovery, and across-the-board wage stagnation.”
The cause of the high unemployment and increase in part-time workers continues to be directly related to economic and fiscal policy. As Zuckerman argues:
There are a number reasons for our predicament, most importantly a historically low growth rate for an economic ‘recovery.’ Gross domestic product growth in 2013 was a feeble 1.9 percent, and it fell at a seasonally adjusted annual rate of 2.9 percent in the first quarter of 2014.
In addition to slow economic growth, policies such as the Patient Protection and Affordable Care Act are inflicting severe tribulations on the economy. “Many employers cut workers’ hours to avoid the Affordable Care Act’s mandate to provide health insurance to anyone working 30 hours a week or more,” stated Zuckerman. The Affordable Care Act is not only pushing more people into part-time work, but also raising the cost of health care and placing a severe fiscal burden on the nation.
Another significant issue that is causing high unemployment is fiscal uncertainty. Since the Great Recession the federal government has been running trillion-dollar deficits, and although the deficit is projected to be lower this year, the nation still faces a significant fiscal crisis because of the national debt. The entire national debt is currently over $17 trillion and rising, and federal spending continues to accelerate. Chris Edwards, Director of Tax Policy Studies at the Cato Institute, states that spending has risen “from 17.6 percent of GDP in 2000 to 20.4 percent this year,” and will rise “to 31.8 percent by 2040.”
A recent report issued by the Congressional Budget Office (CBO) “projects that debt held by the public will grow from almost $13 trillion today to $21 trillion 10 years from now and $53 trillion in 25 years…” It is clear that the federal government faces a serious spending problem even with the lower projected deficit:
The modest reduction in deficits and debt claimed in the budget are accompanied by significant increases in federal spending. Annual federal expenditures over the decade will rise from $3.6 trillion today to $5.9 trillion 10 years from now. Spending on entitlements would grow by 76 percent, and spending on interest on the debt would almost quadruple, rising from $224 billion today to $804 billion in 2024. Over the 10 years taken as a whole, spending under the President’s policies are $436 billion above the adjusted baseline.
The federal budget is approaching $4 trillion and although both Republicans and Democrats can share in the blame, President Barack Obama’s policies have caused a massive increase in the national debt. The overall fiscal crisis is much worse when the unfunded obligations of entitlement programs such Social Security, Medicare, and Medicaid are taken into consideration.
As Senator Rod Portman (R-OH) recently described in The Wall Street Journal:
This year’s budget deficit of ‘only’ $500 billion has brought some complacency on federal spending and deficits. It shouldn’t. The Congressional Budget Office’s long-term budget outlook released on July 15 shows a $40 trillion increase in debt over the next two decades. While a $500 billion deficit is welcome compared with the $1.4 trillion peak in 2009, the decline is temporary. The CBO’s other, more realistic ‘alternative baseline,’ which assumes Congress continues current policies, projects new debt of $10 trillion over the next decade, followed by $100 trillion over the subsequent two decades.
This massive amount of debt is not imaginary. Senator Portman states that the CBO “simply stops calculating the national debt after 36 years. Apparently its models cannot conceive of a functioning economy.” This is why such an urgency exists to reform entitlement programs, because as Senator Portman explains the CBO’s projections “assumes no more recessions, wars, terrorist attacks or natural catastrophes, and that interest costs on the national debt will be permanently held by near-record low interest rates; also that certain ObamaCare price controls widely derided as unrealistic will continue forever.”
The debt is an albatross around the neck of the economy and it is a leading factor why the nation has not seen significant economic growth. As economist and columnist Larry Kudlow recently wrote:
The massive federal spending stimulus of 2009-2010 did not work. There were no so-called fiscal multipliers. The Fed’s [Federal Reserve] near $3.5 trillion of balance sheet creation also failed, with money multipliers and velocity rates collapsing. ObamaCare has thrown a wet blanket over business hiring…Overregulation has stifled Main Street businesses and start-ups. The highest corporate-tax rate among developed countries is forcing American businesses to flee to lower-tax nations…Tax hikes on personal income, capital gains, dividends, and payrolls are reducing growth incentives.
The United States is at a fundamental crossroads and it is clear that a policy change is needed. Blame for the current decline of the United States can be shared by both political parties, but it is also a consequence of the nation abandoning constitutional government. Larry Kudlow argued correctly that policymakers should reflect on the philosophy of President Ronald Reagan, who was a strong believer in constitutional limited government.
“Reagan’s free enterprise growth model of easier taxes, limited government, lighter regulation, and sound money strengthened America both at home and abroad,” argued Kudlow. This is the model policymakers need to follow rather than, as Kudlow states, President Obama’s “model of heavy-handed government, income redistribution, punishing success, and cheap money which has diminished us at home and weakened us around the world.”
John R. Hendrickson is a Research Analyst at Public Interest Institute.
The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.
 Mortimer Zuckerman, “The Full-Time Scandal of Part-Time America,” The Wall Street Journal, July 13, 2014, <http://online.wsj.com/articles/mortimer-zuckerman-the-full-time-scandal-of-part-time-america-1405291652> accessed on July 21, 2014.
 Chris Edwards, “CBO Long-Term Spending Projections,” Cato at Liberty, July 15, 2014, Cato Institute, <http://www.cato.org/blog/cbo-long-term-spending-projections?utm_source=Cato+Institute+Emails&utm_campaign=fbcad419ae-Cato_Today&utm_medium=email&utm_term=0_395878584c-fbcad419ae-141715094&mc_cid=fbcad419ae&mc_eid=a91dd5c73b> accessed on July 21, 2014.
 United States Senate Committee on the Budget, Republicans, “CBO Report: After Doubling in Last Six Years, Debt Will Explode in Coming Decades,” Budget Background, July 15, 2014, < http://www.budget.senate.gov/republican/public/index.cfm/budget-background?ID=858f65be-1e26-438e-833a-8ae2599b2308> accessed on July 21, 2014.
 United States Senate Committee on the Budget, “The President’s Mid-Session Review of the FY2015 Budget,” Budget Background, July 11, 2014, <http://www.budget.senate.gov/republican/public/index.cfm/budget-background?ID=bc6ed2d4-e1ed-4dbd-aec0-dc9f77be6bf5> accessed on July 21, 2014.
 Senator Rob Portman, “Heading Off the Entitlement Meltdown,” The Wall Street Journal, July 21, 2014, <http://online.wsj.com/articles/rob-portman-heading-off-the-entitlement-meltdown-1405983479> accessed on July 22, 2014.
 Larry Kudlow, “Obama’s Weak Economy at Home Has Weakened Us Abroad and Putin Knows It,” Investor’s Business Daily, July 18, 2014, <http://news.investors.com/ibd-editorials/071814-709462-obama-weak-economy-invites-aggression-from-abroad.htm> accessed on July 21, 2014.