Supply side economics works, and if one can keep the government out of the way, all boats will truly rise on the rising tide
Beware Economists Touting Latest Unemployment Numbers
As much as I am eager to celebrate the American economy coming back into the land of the living, I am also cautious about getting into the Conga line until I can look at some of the internal numbers associated with those who are striving to achieve the American dream. What is not often discussed by the pinheads on TV is that the level of participation in the labor force is perhaps as important as the actual number of people working. Though the number of Americans working is at all time high, the labor participation rate reported by the Bureau of Labor Statistics remains an anemic 62.7 percent. Ten years ago, before the big economic meltdown, that rate was above 66 percent. Why does this matter? It matters because it means that to get back to the historic participation rate of just 10 years ago, an additional 8.7 million people need to come off the bench and get back in the game.
The jobs numbers reported last week were spectacular, given previous circumstances. Unemployment was down to 3.8 percent with historically high levels of employment for African-Americans. This is great news, especially when one finds the Atlanta Federal Reserve estimating that the economy has the potential to grow at a furious rate of 4.8 percent. That level of growth reminds one of the halcyon days of the Reagan Boom of the 1980s. However, one should remind oneself about what that unemployment number means.
The unemployment rate is dependent upon the number of people who are actually looking for work. Given the current rules for reporting unemployment, the 3.8 percent rate is pretty good on the surface. There were 233 thousand jobs created in the month of May. That number is above the average monthly increase in adults entering the workforce, so given a little Kentucky windage, the unemployment rate will come down. Again, these circumstances look pretty good to the casual observer, but one should take a hard look at what those numbers really indicate.
Over the past 10 years, an additional 193 thousand adults have entered the workforce every month. Thus, to maintain a constant level of employment, 193 thousand jobs must be created every month, if nothing else changes. In May, there were 233 thousand jobs created. That is only 40 thousand more than what are needed to break even. With the unemployment rate going down .1 of a percent, that means some 150 thousand people left the workforce to make the math work. That is not a good thing. Sure enough, the Bureau of Labor Statistics, the government entity that tracks all of this, reported that the labor participation did, indeed, drop .1 of a percent from 62.8 to 62.7 percent.
To provide perspective, if the economy were to produce some 300 thousand jobs a month, month after month, it would take more than seven years to clear most of the 8.7 million workers who are simply not participating at this time. Imagine what having an additional 8.7 million workers would mean to the Gross Domestic Product, the government revenue base and a host of other economic indicators. Of course, there would be the “demon under the bed,” the dreaded monster called inflation.
Supply side economics works, and if one can keep the government out of the way
In a year over year analysis, wages have gone up three percent. Inflation has been around two percent, so real income is improving. With changes in regulatory regimes, tax reform, better trade deals and improving consumer confidence, there is no reason to believe that the economy cannot stay on this upward trajectory. However, I will feel a lot better when I start to see that serious backlog of able-bodied workers getting back into the labor market.
Economists, when discussing labor, often mention the reservation wage—that wage level that will entice one to seek employment over not working. As the economy improves and the tax reforms take deeper effect, businesses will begin investing and attempt to expand operations. This competition for workers will put upward pressure on wages, thus more likely presenting reservation wages to a host of those who otherwise are sitting things out. If more and more people choose to work rather than sit, then one will truly have something to celebrate.
I have the utmost confidence in the President and my friend Larry Kudlow, Director of the National Economic Council, as they provide stewardship to what I hope is a juggernaut of a growing economy. Supply side economics works, and if one can keep the government out of the way, all boats will truly rise on the rising tide.
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Samuel H. Clovis, Jr., Doctor of Public Administration
Liston to Sam on LATalkRadio, Sundays: 1:00 to 3:00 PM (PST)
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Sam Clovis was raised in Kansas and attended the United States Air Force Academy, serving for 25 years on active duty as a fighter pilot. He retired as a Colonel and the Inspector General of NORAD and the United States Space Command.
Sam served as a Fellow at the Homeland Security Institute, contributing in national preparedness and immigration policy. He recently served as a tenured full professor of economics at Morningside College.
Sam has a BS from the Academy, an MBA from Golden Gate University and a doctorate from the University of Alabama. He served as national co-chair and chief policy advisor for the Trump for President Campaign, was a policy director during the transition period and served as the Senior White House Advisor to the US Department of Agriculture. He currently lives in rural Iowa.
