Peter Morici, a business professor at the University of Maryland, raised a good point today upon assessing the U.S. Department of Labor’s jobs situation report. Professor Morici described Medicare and raising the minimum wage as “politically popular but largely ineffective policies” for combating income inequality and raising living standards. Professor Morici compared the Obama administration’s management of the economy with the performance of the Reagan administration thirty years ago observing that:
“The defining difference between the recent recovery and the strong record of the 1980s has been the Obama Administration’s reliance on policies that simply address the symptoms of economic stagnation, such as the expansion of Medicare, longer unemployment benefits and support for a higher minimum wage.”
First, I’ll get my nostalgia out of the way and add a face to Professor Morici’s comparison of the Obama and Reagan eras. From a personal standpoint, I miss the Reagan era. Finding work during the Reagan era, whether as a teenager looking for seasonal work between college semesters; as a college senior landing a job two months before graduation; or looking for other employment opportunities while changing locations, finding opportunities during that era was a lot easier than today. Being a newly minted college graduate and being out of work for months was unheard of during the 1980s.
Second, I agree with Professor Morici’s observation that President Obama’s policies are aimed more at symptoms of the malaise in the personal economies of Americans versus the root causes. As I shared in a post yesterday, raising the minimum wage is a bandage. It’s a policy prescription that does not address what I consider the root problem in addressing poverty, a lack of capital. It’s easier to treat symptoms of economic malaise with fake capital such as minimum wage increases (which will only lead to workers being replaced with technology at a faster rate), and Medicare (which has to be paid for while increasing the demand and prices for actual health care delivery). Aspirin may temporarily ease the pain of a headache, but if symptoms persist, what’s next?
Third, I find that as an indicator of how well the economy is doing the unemployment rate is more public relations fodder than an important economic metric. An increase in hiring of human resources only tells me that the portions of the economy dependent on human labor is seeing an increase in commercial activity such that more hiring is necessary. What happens to the American psyche when long-term unemployment gets longer while the economy shows continued positive growth while the indicia of the financial markets continue to show gains? How does the administration explain that improvements in technology combined with tax rates and regulations that scare away business from our shores are not giving producers incentive to hire human resources here at home? Will the response be to continue to provide a larger and larger welfare state because we couldn’t address the political problem of an electorate growing increasingly angry over losing a grip on their economic place in the world?
I’m a pessimist in that I believe opportunities exist for the opening of new markets and that American labor can be used to exploit those markets.