The debate about jobs is, unfortunately, not addressing the real scope of the issue. There are two major factors, and they are intimately related: the number of jobs and the total national income. Bear with me, but this requires looking at a few numbers.
Problem 1: Jobs
The current population of the US is about 305,000,000. There are approximately 170,000,000 who are employed or want to be employed, or about 55% of the total population.
Currently, government employment – federal, state and local, to include military, teachers, firefighters, police, etc., totals about 13% of the work force, or about 22,000,000.
By 2050, the total US populations will be approximately 450,000,000 (a 1% per year growth rate). Assuming that the same percentages apply, the number of people who are employed or wish to be employed will number about 247,000,000, of which total government employment would be roughly 32,000,000. This means that the private sector must (if we were to have zero unemployment, which should ostensibly be our goal, despite what the economists might say) provide 215,000,000 jobs.
Currently, the private sector consists of roughly 140,000,000 jobs. The simple difference is 75,000,000 jobs. What that means is that over the next 40 years the free market must create 75,000,000 new jobs.
I say ‘simple difference’ because the number is actually a bit larger than that; every year certain jobs go away because of technology and changes in the economy, and those lost job need to be replaced. Technology of the future being still unknown, as are tastes, that number is an unknown, but will certainly run in excess of 100,000 per year. This means that, in rough numbers, at least 80,000,000 new jobs need to be created over the next 40 years, or 2,000,000 per year, every year.
The number is also probably higher than that as life expectancy increases retirement ages slowly work upwards and technological changes continue to accelerate, so 2 million jobs per year, every year for the next 40 years, should be looked on as a lower limit.
Problem 2: Income
The current US per capita income is roughly $40,000. All well and good. Of course, per capita national debt is also approximately $40,000. Unfortunately, that number is insignificant when considered next to the real issue: unfunded government annuities – the Social Security, HealthCare, Welfare, and all the other entitlements that now exist within federal and state governments. Simply put, the amount of money that is going to be paid out to the current US population – by the US and state governments – by YOU the TAXPAYER – over the course of your lives is $130,000,000,000,000. That works out to roughly 425,000 per capita. Add the two together and you get $465,000 per capita. Of course, that number is misleading simply because only 140,000,000 Americans actually are employed right now creating real wealth. So, the real figure is just a hair short of $1 million for each worker-taxpayer in the marketplace. What that means is that each and every worker needs to contribute – over the course of 40 years of work - $25,000 per year to paying off those annuities. If you manage to just do that you will retire with just your Social Security income, an income that everyone acknowledges is supposed to be a supplement, not a primary retirement plan.
Note too that as the population grows the size of the unfunded annuities grows as well. This has major implications when we start to deal with the size of the economy we need to generate over the next 40 years and beyond.
All of this is without any inflation – zero inflation. To put that in perspective, just 2% inflation for 40 years means that the $25,000 paid out in year 1 would grow to $67,000 by year 40, and total payout over 40 years would amount to $1,840,000. (Of course, the argument can be made that as long as everyone’s income keeps growing the inflation doesn’t matter. But that doesn’t account for reality, in which incomes do not grow evenly, people living on retirement accounts are quickly left behind, and expenses for short periods of time can rise faster than incomes, forcing personal crises in the short term that cannot be assuaged by knowledge that ‘in the long run it will all work out.’ People lose their houses in the short term; people can’t pay for school in the short term, etc.)
To compensate for this, real income, that is average real salaries, needs to grow by more than $25,000 per year – assuming that 100% of the increase went directly into addressing these annuities, which is simply not possible. In fact, it is difficult to imagine a situation in which even 50% of any increase would be directed towards national debt and these annuities. But, that at least is possible, if we increase the average employed American’s income by $50,000 by 2050. Further, if we are going to engage in any real planning, we should include as a goal that very taxpayer establish a personal retirement account of there own. How big should that be? Assuming that the average worker-taxpayer lives for 15 years after retirement and wishes to draw $30,000 per year from his annuity, the annuity will need to be funded in the range of $400,000. That means another $10,000 per year per worker.
Where do all these numbers leave us as we look forward to how large the economy needs to be in 2050? To recap, we will need to have 247,000,000 private sector jobs (and 32,000,000 public sector jobs), and we will need to have overall output per worker grow to at least $175,000. In short, by 2050 the GDP must exceed $43,000,000,000,000 in 2010 dollars.
This sounds astronomical. It should be noted that growing from 14 trillion to 43 trillion in 40 years is 3% real growth per year for 40 years. While difficult, this is not impossible. Nevertheless, the implications here are significant. This amount of growth – in a sustained fashion over an extended period of time – is huge. Reasonably speaking, that will be at least six and probably eight presidential administrations. To succeed it would require that we – as a nation – consider it to be all consuming, it must be our prime driver. And so, first and foremost, government needs to develop a long-term perspective on economic growth and job growth. If the government is doing something that does not directly or indirectly support growing the economy, we truly can’t afford it. More to the point, this is a scale of job and wealth creation that is well beyond the scope of any government program. Government cannot ‘create’ this many jobs. What it can, and must, do is to provide the environment that creates these jobs.
The first issue in doing so is a fundamental shift in the perspective of many in government. The free market is the only path to the creation of this many new jobs. The government, and the people in government, must recognize that their real job must be to support and enable the free market in the creation of those jobs. Put another way, it doesn’t matter whether you love the free market or hate it, whether you believe in an agrarian revolution or are a confirmed techno-geek; whether you are a Marxist or a libertarian: the only ‘place’ that can create this many jobs is the market place. This scale of problem was faced by the Chinese Communists 20 years ago. They recognized that they could not create the tens of millions of jobs they needed, that the market place alone could do. And so, irrespective of their Communist leanings, they began to shift to the market. (That the government in Beijing still has a huge role to play in their market, and that it hardly constitutes what we would call a free market is one of the reasons the Chinese have such a large unemployment – underemployment problem. Our committed lovers of big government and government job creation need to take note of those problems.)
Tomorrow: Some Steps We Should Take
No comments:
Post a Comment