The prevalence of the mammone has long been thought to be a predominantly Italian phenomenon, with deep cultural roots. It has grown more pronounced with the country’s recent economic distress. Since 2008, a growing percentage of Italian men aged 25-54 have abandoned the labor force, no longer bothering even to look for work.
Italy’s workforce participation rate among men of prime working age is by far Europe’s lowest. But it is not the lowest in the developed world. Italy now shares that dubious distinction with the U.S.
That wouldn’t happen if Obama were President.
At least that’s the conclusion you’d draw from reading the Economic Report of the President, released last month by the White House Council of Economic Advisers (CEA). The report holds the President blameless for a tepid recovery and symptoms of a dodgy economy that have worsened on his watch. Judging from the report, the world’s most powerful man is powerless to stand against shifting economic tides.
The CEA breaks the news about the Obama-era plunge in male workforce participation rates on page 36 of its annual report, noting that the U.S. is, in this respect, “something of an outlier.” That is something of an understatement. The downward drift in male workforce participation that began during the 1990s has more recently become a precipitous drop, leaving the U.S. and Italy as the two developed countries with the highest percentage of males aged 25-54 neither working nor seeking work, according to OECD statistics cited by the President’s economists.
This trend cannot be explained away as the baby boom becoming a “retirement boom,” as the report at one point suggests [p. 36]. Workforce participation rates among people 55 and older actually have risen since President Obama took office, the only age group to show improvement. The labor force decline hasn’t occurred primarily among older workers, but among men of prime working age.
And women as well. The U.S. is the only OECD country that has seen workforce participation rates fall for both men and women aged 25-54 [p. 38]. Female participation rates would improve, the CEA argues, if government were to require companies to offer paid maternity leave (pp. 169ff).
Mandating paid leave is among the clutch of policy proposals that the President has branded “middle class economics,” a fuzzy formulation born of fuzzy thinking. The President and his advisers believe that we can cure many of our economic ills by making the middle class more dependent on government for things their wages used to buy.
And yet the economy’s biggest success of 2014 came only after Congress abruptly cut government benefits to the middle class. In his introduction to the CEA report, the President called 2014 a “breakthrough year” because “the economy added more jobs at the fastest pace since the 1990s” [p. 3]. Employment increased as workforce participation rates at least temporarily stabilized so “the unemployment rate plunged to its lowest point in over six years, far faster than economists predicted.” [p.3]
Faster than the President’s economists had predicted anyway. Last year, the CEA said that middle class economics required that government extend an expiring program that paid unemployment benefits for longer than the customary 26 weeks. They issued a joint report with the Labor Department in December 2013, warning that letting the program of extended jobless benefits expire would result in a loss of 240,000 jobs. Congress let the program expire. The economy added a monthly average of 260,000 jobs.
A study published by the National Bureau of Economic Research attributed the employment boom largely to the cutoff of extended unemployment benefits. While last year’s Economic Report of the President obsessed on the need to extend unemployment benefits (the UI program was referenced 46 times), this year’s report doesn’t bother to mention that Congress allowed the program to lapse, though its expiration was arguably the year’s most significant economic policy development.
The CEA offers no explanation for how last year’s report got things so wrong, makes no mention of how cutting benefits may have gotten more people back to work, and includes no assessment of what that might mean for the President’s belief that prosperity is achieved by enlarging government-mandated benefits.
Such learned ignorance is consistent with the report’s habitual denial of the economic effects of the President’s policies. This is, after all, the annual economic report of the man who has been President for more than six years. His biggest accomplishments are behind him. Their implementation has taken root.
He has largely gotten his way on fiscal policy: entitlement spending is up, taxes on successful individuals are higher, the federal government has enlarged its control over health care, banks are regulated more heavily and largely in accordance with his prescriptions, only a temporary restraining order prevents his Administration from conferring legal status on millions of people who are living here unlawfully, the internet is now a public utility subject to politically appointed commissioners, environmental regulations have proliferated, and federal debt has mushroomed.
These profound changes have largely been abetted by federal courts stacked with judges favorably disposed to Administration policies and by “unconventional” monetary policy instituted by a Federal Reserve whose interventions have coincided almost perfectly with the President’s expressed desires.
This is Obama’s world. He and his advisers are loathe to admit that, since it is not the cheery place he’d promised. The economy is underperforming, inequality is increasing, millions of people of prime working age no longer seek work. Such is the judgment, not of the President’s critics, but of his economic counselors.
But instead of honestly assessing the causes of these shortcomings, the CEA devotes its energies to asserting that they are not the President’s fault. Our economic problems began around 1973, they argue. For the quarter century prior to that, economic growth was robust, labor force participation expanded, wages and productivity grew. [pp. 29-31]. The economy hasn’t hit on all cylinders since, according to the CEA. From 1973-1995, productivity growth stalled. From 1995-2013 (note how the report lumps the Obama economy with that of his oft-maligned predecessor), productivity growth has returned, but labor force participation has declined and wages have lagged.
Those observations, while informative, raise more questions. In 1973, one would likely have forecast blue skies for the economy. The leading edge of the baby boom generation was entering its prime working years, new opportunities were opening for women and minorities, the Great Society programs were just gaining traction, the Vietnam War was winding down and – though no one could have known it at the time – nearly three decades would pass before the U.S. would be embroiled in another protracted war.
And yet, the economy has disappointed, according to White House economists. That might have led them to reflect on how changes in government policy over the past four decades may have contributed to its underperformance.
The CEA lacks such curiosity. It does note that the collapse of the Bretton Woods regime in 1973 constituted a decisive break in monetary policy [p. 31]. But the report doesn’t point out that introduction of the new monetary system was followed almost immediately by one of the country’s worst bouts of inflation or that the era has been marked by bubbles, busts and six recessions, including the worst since the Great Depression.
The report doesn’t stop to ponder the possibility that something could be fundamentally wrong with monetary policy. Nor does it consider the effect of equally dramatic changes in fiscal and social policy that have occurred since 1973. In that year, federal transfer payments amounted to 6 percent of GDP; by 2014, they had reached 11 percent. Military spending fell in real terms from 7 percent of GDP to 4.4 percent. Gross federal debt amounted to 31.5 percent of GDP in 1973; last year it exceeded 100 percent. Federal entitlement programs consumed nearly 70 percent of tax revenue in 2014, compared with just under 50 percent in 1973. Poverty has withstood this onslaught of social spending. The poverty rate stood at 11.1 percent in 1973; it has not been that low in any year since. It remained at 15 percent or higher in three successive years (2010-12) for the first time since the War on Poverty’s opening salvo.
Cultural change accompanied fiscal change. Population growth was the preoccupation of the cognoscenti in 1973, just as climate change is today. They got what they wanted. Abortions are commonplace and birth control is “free.” The fertility rate has dropped to 12.6 percent, lower than in 1973 (14.8 percent) and just more than half the 1960 rate (23.7 percent). This cultural change has produced an aging population with all of the social and economic displacements that portends.
Cultural mores favor the appetites of adults over the needs of children, leading to higher rates of divorce, an elevated incidence of births to unmarried women, and an evolving redefinition of marriage and family.
In short, the Left has gotten virtually everything it wanted since 1973, just as the President has gotten virtually everything he wanted since 2009. That’s not a judgment on whether those changes were good or bad. Each had something to commend it. It is only to say that those who successfully advocated those changes should face up to their consequences, both good and bad.
The economy’s structural problems are at least to some extent attributable to the cumulative weight of the monetary, fiscal and social changes that have occurred over the past four decades. The CEA report does not come to grips with that possibility.
Our future depends in part on our willingness to rethink the received economic wisdom of our recent past.
That won’t happen while Obama is President.