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Why We Have, And Probably Will Keep Having, Sluggish Job Growth

Why has the American economy had such sluggish job creation and economic growth? That’s a pretty fundamental question, and one for which most conventional economists offer unsatisfying answers.

Clues can be found, I think, in the new book by the unconventional economist and blogger Arnold Kling, Specialization and Trade: A Re-Introduction to Economics.

It is, among other things, a polemic against macroeconomists who treat the economy as what Kling calls a “GDP factory” and who assume that policymakers can get it producing more by just stepping a little harder on the gas pedal, with federal stimulus spending or low interest rates.

As you may have noticed, that hasn’t been working very well.

Kling sees the economy as the constantly changing sum total of firms, entrepreneurs and individuals specializing in certain work and trading with each other. In a typical month, it both destroys and creates about 4 million jobs.

If the number destroyed persistently exceeds the number created, you have a recession. If the number created only narrowly exceeds the number destroyed, you have what we’ve been living with for the last nine years.

Huge numbers of jobs were destroyed in 2008-09, and since then job creation has been disappointingly slow. In Forbes, Michael Malone points to Economic Innovation Group figures showing that net new businesses fell from 421,000 in 1992-96 and 405,000 in 2002-06 to 166,500 in 2010-14. That indicates a shocking decline in what John Maynard Keynes called “animal spirits.”

Reasons are not hard to see. Higher federal tax rates have hurt, especially in high-tax states that have seen businesses flee to lower-tax places like Texas. Taking money away from existing enterprises and potential entrepreneurs to pay for skyrocketing pensions for retired public employee union members is not a recipe for job growth.

The Obama administration’s record-setting pile-on of regulation after regulation surely hurts as well. Obamacare regulations deter many a business from hiring a 50th full-time employee. Higher minimum wages destroy jobs in which entry-level workers can develop skills and good work habits. Mandates for increased benefits and leave-time crowd out job creation.

The aging of the population plays some role, but doesn’t explain slow job creation, which apparently motivates many baby boomers to cling to jobs they have after age 65.

Another factor, less often stressed, is reduced mobility. Fewer Americans are up and moving. American Enterprise Institute president Arthur Brooks points out that 50 years ago about 20 percent of Americans moved every year and 25 years ago about 15 percent did. Now it’s down to about 10 percent.

In an economy in which patterns of specialization and trade are always changing, Kling argues, it’s impossible to maintain stable local employment patterns. Some places shed jobs, in others they are created. Many people need to move to maximize opportunity. These days fewer do.

Why? One reason is the explosion in the number of people receiving disability insurance ?? it’s tripled since 1980, doubled since 1995. West Virginia, despite low job creation, has seen little domestic out-migration. Not coincidentally, it has the highest rate of disability payments. People once left the mountains, for Michigan in the 1940s, Texas in the 1990s. Now they stay put and wait for $13,000 in annual DI.

Another reason is that young people increasingly are living with their parents ?? 32 percent of those age 18-34 according to the Pew Research Center, the highest since the 1930s Depression. Attending local colleges and junior colleges with cheap in-state tuition also tends to reduce mobility, but often doesn’t provide job-worthy skills.

Nor does it necessary spur an urge to entrepreneurship. Federal Reserve data indicates that the percentage of under-30s owning all or part of a business is one-third the rate it was in 1989. And a plethora of state occupational licensing laws, as the Obama White House has argued, close off opportunities in order to protect incumbents.

Unfortunately, the likely policies of the presumptive presidential nominees would make things worse.

Hillary Clinton would increase regulatory burdens and increase the cost of employing people. Her goal, like that of Bernie Sanders, is to make us more like continental Europe, which has had zero job growth for years.

Donald Trump’s promise to “make America great again” promises restoration of a rosily remembered but largely mythical past. Abrogating trade agreements won’t create half a million auto and steel jobs. Trump’s penchant for deal-making and crony capitalism means propping up insiders and preventing job creation.

Kling says he’s voting for Gary Johnson. You can see why.

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Written By

Mr. Barone is a resident fellow at the American Enterprise Institute, a Fox News Channel contributor and the principal co-author of The Almanac of American Politics, published by National Journal every two years.

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