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October 9, 2012
The Dismal Science
Fixing the Economy
by Adam Smith

The great recession that we are currently still enduring has been very rough on workers. If you perform a quick calculation of where the unemployment rate should be in the United States (taking into account productivity increases, young people entering the workforce, and where the unemployment rate was when the recession started), the current unemployment rate should be almost 15%.

The only reason we are not at that rate is so many people have dropped out of the workforce.

The unemployment rate used by the media does not count people that have given up looking for work. Taken to the extreme, if everyone that does not have a job quit looking for work, we would have an unemployment rate of 0%. This of course is crazy.

The question is why can’t the U.S. economy create any jobs? This past month, 114,000 jobs were created. This is not even enough to keep up with young people entering the workforce. I am here to give you some answers. I will reveal three easy steps that the government can do to get the economy growing again. None of them cost the taxpayer a dime.

First it is good to remember how large the U.S. economy is in the world. Our gross domestic product is approaching $16 trillion. You would have to combine the economies of China, Japan, and Germany to have an economy as large as the United States. If we can start to really grow, much of Europe’s problems will be solved.

The first step is to radically decrease the cost of energy.

This is the easiest step to complete. The federal government needs to allow for off-shore drilling again, construction of the keystone pipeline, extraction of the oil in ANWAR, and they need to stop trying to kill the coal industry. I believe that there is no reason why we should be paying more than $2 a gallon at the gas pump.

What kind of difference would this make? Let me tell you the impact just on my family. We live a little out into the country and have to fill up our three cars once a week. That means we put in about 15 gallons a week in each vehicle. At $4 per gallon, that is $180 per week or $720 per month. So cutting the cost of gas in half means we would have an extra $360 every month to spend on other products.

Multiply those savings over all Americans and that is an incredible influx of demand for goods and services in our economy. Way too much of the money we spend at the pump is sent to other countries to purchase their oil. Having that money in our economy would help us grow. That is not even considering the impact this reduction would have on businesses. They would have a major cost to grow, produce, and transport products cut in half.

High energy cost is a choice we are making by restricting the supply. This insanity has to stop.

The second step is to simplify the tax code.

The tax rates need to decrease, and many deductions need to be eliminated. These deductions are distortions in the market, and the lower rates will help encourage investing and growth. I am not talking about decreasing tax revenues. With the rate the government is spending and increasing our debt, we cannot afford to decrease tax revenues. But by lowering the tax rates and keeping revenue neutral, the government will be creating incentives for the economy to grow.

The third step is to stop acting like business is the enemy.

It is time for politicians to quit vilifying entire industries and free markets. If you listen to what some politicians say, you would think that oil, finance, coal, manufacturing, soda, beef, and airline industries were completely evil. Just not saying anything negative would be a huge step in the right direction. They need to quite talking about obscene profits and the need to spread around the wealth. They need to quite talking about regulating everything and how people succeed only because of the beneficence of the all powerful government.

As someone recently said, “Stop It.”

It takes great courage to start or expand a business. Knowing that the government is on your side would help more take the plunge.

These three steps seem so simple but they could have a profound effect. Many economists are now predicting that we will not get the number of people unemployed back to pre-recession levels until way after 2020. This is entirely unacceptable. It is time for our government to put people first.

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