March 7, 2014

Digging our graves with debt

Government policies have exacerbated, not helped, the unemployment situation.

President Barack Obama’s latest budget calls for an end to an “era of austerity,” suggesting that after a long period of careful government expenditure, it’s time to spend freely once again. While reading the press release, I had to look up “austerity” in the dictionary, not because I forgot what it meant but because the last time I checked, last year’s budget was $3.44 trillion (this year’s will spend even more). For a second-term president without any hope of getting anything accomplished in Congress, a loose connection between speech and reality is probably not that important anymore, but for the younger generations who will live to suffer the consequences of Obama’s actions, the fiscal situation of this country is pretty damn relevant.

This request for tens of billions of dollars comes after the greatest financial stimulus since the invention of money, on the back of the most dismal jobs report in three years, and in the middle of the worst economic recovery since the Great Depression. While all of this is happening, labor participation has dropped to 62.8 percent, a 36-year low. Ouch. Still, politicians spending money without stopping to consider where it comes from is nothing new—most of the money spent by the government goes right back into the economy, and if we didn’t keep raising the debt limit indefinitely, there would be a practical limit to how much of it can be wasted. Instead, by allowing the government to borrow more money than it takes in year after year, we effectively allow it to borrow against future generations. And, news flash, that’s us. When our government actively legislates policies such as Obamacare and an increased federal minimum wage which incentivizes millions of Americans to stop working, it makes it that much harder for us to pay back all the debt we didn’t actually gain by borrowing.

The Congressional Budget Office recently released two reports on the real impact of Obamacare and the potential impact of raising the federal minimum wage to $10.10 an hour. The first would result in a decrease of work hours approximating two million jobs as people would no longer rely on their full-time job for access to affordable health care. Actually, quitting their jobs would drop them to an income bracket in which the government would effectively give free health care at the expense of the taxpayer. The second would result in an estimated 500,000 lost jobs on account of companies cutting workers who only generate between eight and 10 dollars of value per hour. However, not everyone is convinced that disincentivizing work is a bad thing: talk show host Bill Maher argued last week, “Americans work too much. Americans are over-worked, overstressed. They take less vacation time. They don’t retire when they want to. Not everything is GDP.” This would be fine, except that for the government, everything should be GDP. Without economic productivity, it can’t afford things like food stamps for millions of struggling Americans or a military that costs six times more than China’s.

This isn’t to say that the government should ignore the benefits of added leisure in pursuing its goal to maximize welfare—it just shouldn’t ignore the larger picture. When someone quits her job because she was in it more for the health care than the money, the cheap health care she now gets from the government is incredibly expensive health care subsidized by taxpayers, who in turn have to work that much harder. Similarly, anyone who works for minimum wage and ends up losing her job will have to increasingly rely on government services, putting additional non-discretionary pressures on the budget. When someone stops working because he wants to, it’s leisure for him. When millions are subsidized to stop working because of an artificial incentive structure, it’s the beginning of the end for the country. Not so hidden behind $17.4 trillion of national debt is, well, $17.4 trillion dollars that have to be eventually paid back with interest. And it’s only going to get worse. The national debt is projected to rise to more than $20 trillion dollars in the next ten years, and as fiscal reality would have it, we’re the generation that’s stuck with paying for the wars and domestic programs of the past five years. Should we really be digging this hole any deeper?

The impacts of these government policies aren’t abstract, either. Due to generally poor market conditions, a quarter of a million recent college graduates—about 2 percent—are working minimum wage jobs, 70 percent more than ten years ago. Raising the minimum wage without addressing the reasons people can’t find work above the minimum wage will only force companies to lay off more people, or force those above the new minimum wage to take a pay-cut to compensate for having to pay their less-productive workers more than they would be worth in a free market. This is exacerbated by Obamacare, which forces employers to provide health care past a certain threshold of full-time employees. In 2013, this resulted in employers hiring part-time employees four times as often as full-time employees when historically the inverse ratio has been the norm.

Even someone with a degree from the esteemed University of Chicago is not impervious to macro-fluctuations in the job market. Upon graduation, we will be facing an environment full of artificial incentives to work less and artificial competition for the jobs we actually want—and if we actually land one of those high-paying and rewarding jobs, guess who’ll be approached first when it’s time to pay back the $20 trillion someone else borrowed for work-disincentivizing subsidies to avoid future tax revenues? Thanks, Uncle Sam.

David Grossman is a first-year in the College.