“If you got a business – you didn’t build that. Somebody else made that happen.”
-Barack Obama, 2012
The Bureau of Economic Analysis released its initial number for Q4 2017 on Friday, and the usual media forces have turned it over as much as it probably bear to be turned over, but it is still worth mentioning a couple of things about the “advance” number. At 2.6%, it is considerably below the 3.0% number that was broadly expected by the market, but this cannot simply be dismissed or accepted on that point, especially in light of the other things we know about the Q4 economic picture from 2017 and from previous years.
First, the optimistic view. At 2.6% GDP Growth, this is the best Q4 performance of the last 4 years. Just going down the line, 2014 Q4 was 2.0%, 2015 Q4 was 0.5%, 2016 Q4 was 1.8%, and, of course, 2017 Q4 was 2.6%. Even if we discount for government spending, which only counts as economic growth for those who subscribe to Keynesian economics (which I don’t), 2.6% is a solid number, putting it on par with Q2 and Q3 in 2016, with the caveat that the economy has been expanding since 2014 Q2 and has been trending upward since 2016 Q1 with a full head of steam. However…
“I will be the greatest jobs president that God ever created.”
-Donald Trump, 2015
Now, the cynical view. While the economy expanded at 2.6% (preliminary), and the economy is clearly expanding, “[t]he labor force participation rate, at 62.7 percent, was unchanged over the month and over the year.” (Bureau of Labor Statistics Jobs Report, January 5, 2018) In simplest terms, the economy isn’t creating enough jobs for a large segment of workers, especially in those parts of the economy that saw significant job losses after the 2008-2009 Recession. The labor force participation rate has been at present levels since late 2013 and has shown no real improvement since 2015.
For working class Americans put out of work during that long decline in labor force participation between 2008 to 2014, the 2.6% GDP Growth number for Q4 means nothing, and this is completely lost on the political class in America. A growing economy, even if robust, is meaningless from a practical standpoint if it’s not helping the individual citizen, which is who the politicians are supposed to be serving. The policy tweaking for the last decade have focused entirely on regulatory concerns that largely only affect corporate bottom lines. Meanwhile, the individual has footed the bill for the last decade’s economic recovery with their very livelihoods.
It all comes down to one simple economic reality. The main barrier to hiring an employee isn’t tax policy, regulatory policy, or even a recession. It’s the price of labor. The higher the price of hiring someone, the less likely companies can afford to hire employees. This isn’t a complex economic theory. It’s very much the simplest of all economic concepts, but the political class and the general public seems to be completely unable to grasp it, so here’s two last graphs to hopefully make it absolutely clear.
Notice that the last major minimum wage increase in the United States corresponds perfectly with the collapse of the labor force participation rate and, coincidentally, precisely with the beginnings of the housing crisis? It’s almost as if the two are related, isn’t it?
That’s because they are.
Liberty is For The Win!