During most of my time at the White House over the last year, America was experiencing one of the best labor markets ever.
The White House called it a blue-collar boom. And they were right.
Then the Wuhan Virus changed everything. As Americans became infected, the resulting fear brought the dynamic blue-collar boom to a frozen standstill. Examining the Institute for Health Metrics and Evaluations’ measure of mobility by state reveals that people started practicing social distancing well before state and local governments shut down society. Subsequently, official government-mandated shutdowns solidified the ensuing fear and economic destruction.
It’s important to know where we’ve been in order to know how we should proceed.
The first thing to note is that we should never shut down the economy again. This should not be a precedent; it should be a lesson about how families, employers, and state and local governments must be better prepared to deal with these types of economic downturns in the future.
Where were we in February 2020, before this catastrophe happened?
The Bureau of Labor Statistics’ total nonfarm jobs data shows there was a fantastic monthly average of 216,000 new jobs created for the three months through February. In only two months, the U.S. economy added 465,000 jobs—24,000 more jobs than the Congressional Budget Office projected for the entirety of 2020 in its final pre-2016 election forecast.
More than 7 million jobs had been added since the 2016 election–5 million more than the CBO’s pre-2016 projection. The robust job creation contributed to the unemployment rate dropping to just 3.5 percent—the lowest in 50 years. The last time unemployment was that low, Nixon was president, and the first man just landed on the moon. The lives of Americans have improved much in the last half-century.
During the boom, wages continued to rise faster than the general level of prices. And not only had income inequality declined, but wealth inequality was also declining, as the wealth of the bottom half increased three times faster than the top half.
After struggling through the Obama years, the manufacturing sector added more than 500,000 jobs during Trump’s tenure. Construction jobs also increased substantially more than pundits and many economists thought possible.
This was before the Great Disruption of COVID-19 and the government shutdowns that unsettled our lives and ruined the livelihoods of millions of Americans.
Starting down the road to recovery begins with understanding how reached those earlier peaks.
During his time in office, President Trump implemented a barrage of pro-growth policies. Tax cuts, deregulation, energy abundance, and reformed trade deals unleashed the immense capabilities of American ingenuity. The result was a level of human flourishing not seen in most people’s lifetime.
Many claimed during the Obama administration that slow growth and declining opportunities were to be the “new normal” for the U.S. economy. Yet in just a short three years under Trump, those claims were proven wrong. In place of the economic malaise under Obama, came a new institutional framework supporting increased freedom and a genuine chance for all Americans to prosper.
Pro-growth policies that support free markets and free people will help us climb out of the economic despair we’re mired in. Instead, unexpected, unfortunate events sent many asking for handouts from taxpayers.
When you combine what was passed in legislation directly to people or programs with the amount authorized to the Federal Reserve to leverage for funding opportunities, Congress gave them plenty—to the tune of more than $9 trillion. But this policy could very well lead to a deepening and extending of the economic downturn, similar to what we witnessed during the Great Depression and Great Recession of 2008.
Furthermore, we haven’t even spent it all. The Committee for a Responsible Federal Budget estimates that more than $5 trillion hasn’t been allocated yet. Now is not the time to grant more requests for bailouts.
Research conducted by Casey Mulligan, Professor of Economics at the University of Chicago, shows that the costs of the pandemic and from the shutdowns have exceeded nearly $14,000 per household and the life years lost from increased unemployment and missed health care have been double those lost from COVID-19. Ultimately, the amount of fear Americans felt about the worrisome virus, along with the mixed signals from Congress, made the situation worse. We need to end the shutdowns before more damage is done.
If the pandemic hadn’t hit, the nation’s 130 million private-sector workers could have generated $16 trillion of income in 2020. Large sectors of the economy are reeling—from leisure and hospitality to retail, to manufacturing, to construction. Consider that if half of all private-sector workers and their employers are idled for three months, then $2 trillion in economic activity or 10% of GDP will be destroyed.
Unfortunately, most of the lost GDP will not be coming back, at least not very soon. It is reasonable to assume a return to a lower level of output and return to growth over time, in a check-shaped growth pattern as pent up demand and supply eventually get going again. But more importantly, the longer the shutdown lasts, the smaller the growth will be afterward as production will be inhibited with fewer employers in business and impacted supply chains.
This can change quickly, however, if we implement pro-growth policies. The path forward should consist of ways to get businesses operating and people back to work. One template for how to get this done is the recovery agenda advocated by the think tank I work for. By supporting the Workplace Recovery Act, suspending all payroll taxes, and permanently eliminating regulations that were suspended during the crisis, we can get the American economy roaring again.
For the sake of America’s future generations, we must get our fiscal house in order at all levels of government. We must impose strict fiscal rules that limit government spending, move to a less burdensome tax system, and reform welfare programs to build a system of opportunity and prosperity.
Ultimately, we need more freedom, not more government. Achieving this will allow us to soar back to the economic heights before this Great Disruption and much higher still. All we need is the political will to get it done.