US: If Economy’s Improving, Why Is Dependency Growing? – by Eric Singer

The government is at full throttle to present the economy as improving especially in light of the upcoming election. At the same time, there has been a stunning rise in dependency as most recently presented by the Heritage Foundation.


Heritage defines dependency as significantly depending on the government for help in two of the following basic expense items: housing, food, shelter, income security or higher education.
At the end of 2007, Heritage conservatively estimates there were 59.4 million Americans significantly dependent on the government.
By the end of 2010, this number had risen to 67.3 million, an increase of nearly 8 million. It is likely that another two or three million were added in 2011, for a net increase of 10 million to 11 million over the past four years.
It is not a coincidence that the number of people participating in the labor force has comparably declined over the same period.
At the end of 2007, participation in the labor force was 66% of the available working age population, with a labor force of 146.2 million.
By the end of 2011, it was 64%, with a decrease of 5.4 million workers to 140.8 million. The official number of unemployed people rose from 7.7 million at the end of 2007 to 13.1 million at the end of 2011, without any accounting for those who were “too discouraged to look for work.”
Nevertheless, as the government has included fewer and fewer people in the category of searching for work, the official unemployment rate continues to fall because both the numerator and the denominator used to make that calculation are losing equal amounts.
In fact, the January BLS report that was so joyfully received by the market showed an Unemployment Rate of 8.3% but a decrease in labor force participation to 63.7% because another 1.2 million people left the labor force.
How can we have falling unemployment and falling labor force participation at the same time? I heard a story a while ago about a woman who had been making $50,000 per year who was laid off.
After some months of casually searching for a full time job, she was offered one paying $40,000, but she refused it.
Her logic was, I am getting $20,000 per year from unemployment benefits, and I am collecting $18,000 per year from baby-sitting off-the-books three days a week, which, after accounting for my lower taxes, works out to almost the same for less work.
Why should she work harder than necessary to pursue happiness? When 67.3 million other Americans are taking easy money from the government, why should she stand on ceremony? Where is the shame? Where is the stigma? Is she “too discouraged” or just selfish? My fear is that many people will look at her experience and say, how can I work only three days a week and collect the same money?
Certainly, the government is not going out of its way to stop this waste, particularly because her example, repeated over and over again, allows the government to point to a falling unemployment as proof that we are on the road to recovery.
The government imagines that as more people become dependent on it, the official unemployment numbers will look better, and our animal spirits and therefore the economy will revive.
But the corruption of the workforce is utterly corrosive to America in the long term. We are supposed to be the “land of the free, and the home of the brave.”
But we are drifting closer to the European attitude of “Sauve Qui Peut,” or “Every man for himself.”
We may have something that looks like a recovery between now and the election, but if it is based on people leaving the workforce to take benefits and work off the books, it will be a Potemkin recovery.
In the Soviet Union, they used to solve this issue by simply announcing that they had achieved 100% employment every year. The official numbers were fabulous, but the reality was much harsher (or in Al Gore terms, “unsustainable”).
A loosely translated popular joke from that era described the Seven Wonders of Communism:
1. Everyone had a job.
2. In spite of the fact that everyone had a job, no one worked.
3. In spite of the fact that no one worked, the production plan was always 100% completed.
4. In spite of the fact that the production plan was 100% successful, the stores shelves were always empty.
5. In spite of the fact that the store shelves were always empty, everyone had everything.
6. In spite of the fact that everybody had everything, everyone stole.
7. In spite of the fact that everyone stole, there was enough for everyone.
Well here we are in America, where because dependency is rising, the total percentage of people working is going down AND unemployment is too. It bothers me a lot that jokes from the Soviet Union seem relevant these days.
• Singer manages the Congressional Effect Fund, which invests in the broad stock market only when Congress is out of session.