John Ransom

There's a super storm raging over our economy that's been seeded and fueled by the federal government over a period of the past several decades. And it's literally costing the country trillions of dollars in GDP per year.
It’s not merely garden-variety government waste that's the problem either. It's monumental stupidity by the government, combined with venial cupidity by voters who think they can get others to pay for their free lunch.

This government-created storm has, more than any other factor, contributed to the fiscal crisis; a crisis that is creating more expansive government programs, robbing us of more GDP, thus ensuring the political class will take more actions that punish the most productive and dynamic elements of our society.

You know? The people who create economic growth?

In order to understand how this storm is being fed, you need only consult some official government figures.
The labor participation rates released recently by the Bureau of Labor Statistics now stands at 63.6, near Carter-recession levels.

According to policy scholar and historian, Professor Richard Vedder of Ohio University, that means as many as 14 million of people are officially out of the labor pool. And the professor from Ohio says it's the government's own unemployment program that's helping to reduce the number of bodies willing to work.

“If you give people money to not work,” says Vedder, “some people will say ‘Gee that’s a pretty good option.’… There have been a lot of studies over the years going back to the 1970s that show these programs on balance added a bit to the unemployment rate.”

Because unemployment compensation has lasted so long, however, unemployment rates have gone up “a couple of percentage points” from where it would otherwise be.

Vedder's back-of-the-envelope calculations that he shared with me says that those missing workers could be costing the economy as much as $800 billion in GDP per year.   “That’s $2500 for every person, or $10,000 for every family” in GDP he says.  

But that's not all: Multiplied and compounded over 10 years, that's not $8 trillion missing from the economy, but rather $9 trillion.

If you want to know why we have an entitlement crisis, why some cities, like Detroit, can't afford to pay for basic services or why teacher pension plans have to cut back benefits, it's not because tax rates are too low, or spending has been cut to the bone. It's because politicians have made off with $9 trillion from our GDP.  That's not just missing GDP, you see; it's missing payroll taxes, income taxes, sales taxes and teacher pension contributions.


John Ransom

John Ransom is the Finance Editor for Townhall Finance.