Friday, January 10, 2014

My View

Random ruminations from your resident curmudgeon...

The unemployment numbers were released today, and there was much fanfare about the unemployment rate dropping below 7%. The reported number was 6.7%. Dig a bit deeper, however, and this number is not only misleading, but troubling. Take a look at the following chart:

The labor force participation rate has been consistently dropping over the past five years. That participation rate is simply the number of people of eligible working age that are actually in the work force. This rate will move around as a population ages and people move from work to retirement, or it can move during an economic downturn or upswing. If we use the same labor force participation rate- the same percentage of the work eligible population that was working- from 2009 we can see that the stated unemployment rate would be 11%. Now to be sure, there have been people who have retired since 2009, but not in sufficient numbers to drive down unemployment to current levels. The reality is that the unemployment rate as calculated by the Bureau of Labor Statistics is not even close to presenting a factual picture of our labor market. Know this: the labor force participation rate is the lowest it has been in 30 years, and this does not bode well for growing our economy.
I never can keep New Year's resolutions- they just slowly slip away. I should just be realistic and call them "ebbolutions".
On January 8th, 1954, president Lyndon B. Johnson in his State of the Union address said, "This administration today, here and now, declares unconditional war on poverty in America." That initiative set forth some programs that have had profound financial and cultural consequences for our country. One of the most significant accomplishments of the Great Society programs has been the drop in poverty among the elderly after the creation of Medicare. The poverty rate for older Americans has fallen from 35% in 1959 to 9% today. And there is no doubt there are individuals and families that have been helped out of dire straits by these programs. The costs to do this, however, have been enormous. Since 1964, we have spent $20 trillion (TRILLION) on means tested wealth transfers, yet the overall poverty rate among Americans has fallen from 19% to 15% (and is now starting to reverse and increase thanks to the ineptitude of Washington). There are other aspects of our war on poverty that bear mentioning, and some of these will not be popular topics of conversation. Since the launch of the War on Poverty, there has been a steady rise in cohabitation, divorce, and out of wedlock births. Today, 52% of American adults are married; it was 72% fifty years ago. In 2012 more than 50% of the births to teenagers or women in their 20's were to single parents. In the African American community, 72.3% of children our born outside of wedlock; among American Indians, it is 65.1%; and among Hispanics, it is 51.3%. Why does this matter? A study by Princeton University in 2010 found that children born to unmarried parents did not fare as well as children born into a married household on virtually any measure: drop out rates; early mortality; adolescent delinquency; emotional health; or childhood injury. 30% of single parent households live below the poverty line. Fixing this problem is complex and requires some difficult decisions. Providing relief in the name of compassion does nothing but perpetuate these vicious cycles. Rather than a safety net of federal programs that ensnares many of our citizens, perhaps it is time to re-think how we are fighting this war.
I was going to quit all my bad habits for the New Year, but then I remembered no one likes a quitter.
Once again, there is a call for raising the minimum wage. Citing restaurant workers and other entry level positions, activists are lobbying to raise the wage to help them financially. While politicians are pushing for this, the IRS implemented a new tax policy January 1 that will prevent restaurant workers from collecting the automatic gratuities that are added to the tab for large parties. The Federal minimum wage for tipped workers is $2.13 per hour and was set in 1991. Many states have implemented a higher minimum wage for those workers, but in all cases, it is assumed that tipped employees will make up the difference in the lower wage through those selfsame tips. Now, servers that have a large party (defined in this IRS regulation as 8 or more people) will not be able to collect that tip. Instead, it is classified as a payroll expense for the employing restaurant and as W-2 wages for the server. This means more cost and record keeping for the employer. Why bring this up? The financial impact is insignificant from the revenue collected by the government. What is critical is the principal involved and that is the micro managing and meddling by the federal government and the additional burden on restaurants to accurately report tip income as wages. Think there will not be some establishments that are caught and penalized because of an error in reporting the tip income? Here is the reality: we need the government to remove the onerous provisions of the tax code and the burdensome regulations that stymie job growth and creation, especially among smaller companies. Until we get legislators that realize you cannot tax your way to prosperity, we will continue to see more regulatory impediments to job growth.
It's funny how one typo can change everythong.
And that, my friends, is my view.

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