Obama's Failed Economic Policy Analysis

While driving in to my job (for which I am grateful to have, and I might add this is the best company I have ever worked for), Bill Handel on KFI stated that the unemployment rate under President Obama has dropped, and that we should consider this a success of his Presidency.......In the words of Dr. Ben Carson, Handel demonstrated that he is part of the "useful bunch of idiots" needed for policy to succeed.  I decided to perform an analysis of the numbers from impartial sources (US Bureau of Labor Statistics and the S&P 500) to see if the numbers are true.......No major surprise, the claims of successful economic policy are pretty much bunk.  Here is how this all fits together.

First, we need to take a look at the unemployment rate.  At first glance, the chart below supports the claim that the unemployment rate has decreased.

Everything is puppy-dogs and butterflies, right?  The number definitely shows a decline.  The decline is only one-sided.......unemployment rate is skewed by the labor participation rate (specifically, people who are employed and people who are actively seeking a job).  The below chart shows that there has been a year-over-year decline in the labor participation rate.

With essentially a 4 million headcount decrease in the labor participation rate, it would be reasonable to expect a significant decrease in the the unemployment rate.  There are several factors that may have contributed to this, including retirements (which clearly does not create new jobs) and individuals no longer seeking employment.

Finally, one must examine the change in population to see if there are changes that should be noted. The below listed chart shows the changes over the same period.

So, making sure I understand this......the population is showing an increase, year-to-year, but the labor force is showing a decrease in participation rate?  Long story short, the claims of the Obama administration make absolutely no sense.  It is yet again proof of failed Democratic economic policy, and that jobs are not created by increased government regulation and restrictions.  It should also be noted that underemployment (think of a college graduate working at Starbucks as they cannot find work) is not considered in any of the above analysis....and is yet further strain on the economy.

So, ask yourself this.....are you better off than you were when the Obama administration made a mess of this country?

Increased Minimum Wage Fantasy

OK, the latest buzz in the People's Republic of California is that raising the minimum wage will increase prosperity for those who are at the lowest tier of the economy.  While in theory this sounds great, a simple examination of the supply and demand curve will clearly demonstrate that there will likely be unintended consequences.

A simple understanding of economics is that labor is a commodity, for which the demand is largely driven by the cost.  As the cost of a given commodity increases, the demand for the same item will decrease.  The black dotted line effectively shows the effect of minimum wage as a means of cost control, setting an artificial minimum price.  As you can see, there is now a rather large delta between the demand of labor and the supply that will be available.  It doesn't take a rocket scientist to deduce the following unintended consequences:

• Demand for labor will decrease, resulting in stagnant or even more likely, increased unemployment.  This will be more evident in smaller businesses, which generally lack the financial resources to absorb a hit to their costs.
• Increased unemployment resulting from this will result in greater strain on public assistance programs, likely pushing the same folks who wanted increased minimum wage to call for higher taxes.  
• The above factors will likely contribute to decreased overall economic activity, lowering consumer confidence, and having an overall drag on the economic indicators.  This will now result in decreased performance to an already shaky stock market.  

The only positive I can see in this horrible scenario is that innovators in small business will likely come up with solutions that will make labor less of a factor (entrepreneurs always manage to do this, which is why they are successful in the first place).  This will result in a long-run decreased demand for labor overall in the economy.......So, when this takes place and the economy starts to show stresses as a result, you can thank the Democratic legislature, organized big labor such as the United Farm Workers (UFW), Service Employees International (SEIU), and anyone else who supported this complete and total nonsense.......

If I have said it once, I have said it a million times......if you wish to make more than the minimum wage, spend the time to increase your marketable skills.  Not everyone has the financial resources to attend college right after high school (I most certainly did not), but everyone who is willing has the opportunity to better their life through education.  I assure you that if you obtain a degree that is in a marketable skill, and then put those skills to work, you will not need the minimum wage increased. 

Economic Proof of Failed Democrat Promises

Everyone likes a free lunch, right?  After all, free is better.....everyone knows this.  Hillary Clinton and Bernie Sanders believe that university education should be free to all who are willing, and have gone as far as made this a promise if they are elected.  It is well documented that those who have graduated from college are compensated higher than those who have not, so this is a good thing, right?  Not so fast......let's bring in sound principles of economics......this one we will call the Law of Supply.

The law of supply is very simple......as the quantity supplied increases, the relative value that a consumer is willing to pay for that item decreases.  The graph to the right demonstrates a very simple example of what is called a "shift" in the supply curve.  As the supply of a given quantity increases, the price a consumer is willing to pay decreases until the price achieves equilibrium point.

The main reason people do not attend college is that they cannot afford the tuition.  Sanders and Clinton propose that if this is made free, there will be economic prosperity for all, and the workers will be better off.  While the claim is noble, it is also foolish to anyone who knows the slightest thing about how an economy works.  The supply of college graduates will increase in their plan, and effectively the wages that these new college graduates can expect will decrease, as the supply of graduates have increased.  The "Free College for All" plan can be counted on for the following to take place:

• Underemployment (a term never mentioned by the Democrats, I might add), with college graduates working at places like Starbucks as there will be fewer jobs available
• Decreased income tax revenue due to decreased wages
• Increases in unemployment of college graduates
• Decreased consumer spending due to decreased wages, resulting in decreased tax revenue (again)

All in all, this plan is foolish, and could devastate the economy.  College is expensive; I know this first-hand.  As I have said many times, the solution is for the University systems to become more competitive, and no longer rely on government subsidization.  This would force universities to become more competitive, and they would either increase the value of their product or reduce their rates to satisfy a market demand.

Now some folks would argue about increasing the minimum wage.....in my next entry, I will point out why this is just as foolish as this free college nonsense.