The number one economic factor that determines prosperity or the lack of it is productivity. It is productivity that leads to increased wages for workers and to increased earnings for small and large businesses alike. The cumulative effect of rising wages and rising earnings is prosperity, and that leads to more jobs. Prosperity is the cause, more jobs is the effect. Since the end of the recession, productivity has languished, and more recently has actually declined. Both real wages and income have been falling for years. The question is why, and what can be done about it?

 

There are many reasons for the fall in productivity. The first is a less competent work force. As baby boomers retire, well-trained dependable workers are being replaced with new lesser-trained and less dependable workers. In fact, in many areas, it is impossible to even replace workers due to the lack of education of the present work force. Our education system has deteriorated noticeably over the last many years regardless of increased funding and increased loans to college students. Students’ skillsets no longer match the skills demanded by businesses.

 

Then there is the fact of less skilled workers being allowed into this country. Some of the highest skilled workers cannot get a visa to America. Worse, many foreign students are not allowed to stay in the US after graduating college. Our immigration policy presently sends college graduates back to their countries, where they compete against the United States. The few that are allowed to stay and build businesses here or join other businesses and create and innovate, add to our productivity rate. But for the most part, we educate foreign students and then prevent them from working here. So our education system and our immigration policies discourage or prevent increased productivity -- the exact opposite of what is intended by those who claim they are for greater employment, higher wages, and more prosperity.

 

But in my view, the most destructive factor that has reduced prosperity in this country is the increased controls and regulations that government has imposed on the economy over the last 6 years. Dodd-Frank, which was designed to stave off any future financial crisis such as the one we just endured, has over a thousand new rules and regulations that would take an army of lawyers to figure out. Many of these new laws are ambiguous and unintelligible. The cost to comply with them is huge. And it takes time away from producing goods and services to deal with the maze of laws imposed by bureaucrats. This reduces productivity therefore prosperity.

 

The same can be said about Obamacare which has upended an entire health industry that represents almost 20% of the economy. The time and energy to comply with bureaucratic red tape has increased as productivity and health care have decreased.

 

Many argue that more jobs lead to prosperity and that the recent fall in the unemployment rate is a sign of economic recovery. That notion is turned on its head. It’s prosperity that leads to jobs. The fact is that the amount of people working as of May 2014 has just returned to the amount working before the recession. So no new jobs have been created for 6 years.

 

Two points: first, this is considered the worst economic recovery in 50 years and the unemployment rate is falling. Only if you judge the recovery by the employment rate alone can you conclude that this is a good economic recovery. Which brings us to point two. Unemployment is not that important to the economy as a whole. It is vitally important to the unemployed, but to the economy at large, it is relatively insignificant.

 

 Let's suppose we had a magic wand and with one flick of the wrist we could make the unemployment rate zero. What would change?  Would there be more production? No.  Would there be more prosperity? No. Would the budget deficit disappear?  Would the national debt be reduced? No. Increased employment doesn’t produce anything. You will find full employment in prison camps, totalitarian governments like Cuba, but you won’t find prosperity. It is prosperity that is the goal, not full employment for the sake of employment.

 

Ronald Reagan knew this when he focused on increased freedom rather than increased employment or higher minimum wages. The result was that "Reaganomics" created the foundation for the greatest amount of prosperity a nation has seen since the Industrial Revolution. He set in motion a Technological Revolution. He was re-elected by asking the public again after four years in office, "Are you better off than you were four years ago?" And the answer was a resounding "yes" that resulted in one of the biggest landslides in political history. Can we say that today?

 

Ask that of the public today and they will tell you that we are still in a recession and this at a time when the unemployment rate has fallen from above 10% to under 6%. Again, it is not higher employment that creates prosperity. It is higher production that creates prosperity and as a consequence produces more jobs and higher wages. If you want prosperity, you will not get it by increasing the minimum wage laws, or creating make-work projects that employ people. Prosperity is not free nor a gift of government. It must be earned.

 

I give you the 25 years of prosperity from 1982 to 2007 for verification of that fact.

 

Paul Nathan

http://www.paulnathan.biz/