For a crash course in government’s negative impact, look at America’s COVID response. In COVID’s beginning, it deepened the economic downturn with lockdowns; now at COVID’s conclusion it is slowing recovery to full employment with high unemployment benefits. And if the Left have their way, they will prolong the problem with more benefits.
Mounting questions about COVID’s origins mean we may never know when it first entered the U.S.; in contrast, we know precisely when government responses to it started. The most important and intrusive of these responses were lockdowns that started as a one-two combination in California and New York in mid-March 2020.
We also know that the economy responded more to the lockdowns than the virus itself. Due to lockdowns’ late March start, their impact on Q1 was muted and real GDP fell just 5 percent in Q1. With the lockdowns in place longer in Q2, real GDP plunged 31.4 percent in Q2.
Conversely, when the virus was strongest, during Q3 and Q4 (as measured by daily new cases and active cases), the economy was rebounding. Real GDP grew 33.4 percent in Q3, 4.3 percent in Q4, and 6.4 percent in 2021’s Q1.
Washington’s response to the pandemic and economic slowdown was to provide enormous amounts of relief. In less than a year from the lockdowns’ beginning, the federal government provided $5.3 trillion in relief. A centerpiece of this relief was enhanced unemployment insurance payments.
As with every other commodity, when you increase its value, you increase demand for it. The same applied to people not working when unemployment payments increased. Despite the economy having effectively regained its pre-pandemic level in Q4 2020 and having exceeded it in Q1 2021, employment is well below its pre-pandemic level.
June’s official report showed unemployment at 5.9 percent versus 3.5 percent in February 2020. The real rate is a much higher 8.5 percent when today’s lower participation rate (61.6 percent) is adjusted to its pre-pandemic level (63.4 percent). Both the higher unemployment rate and the lower participation rate are factors of the higher unemployment benefits.
Although some seek to attribute today’s high unemployment to a lack of child care prohibiting workers’ return to work, this explanation also rests on today’s high unemployment benefits.
There are only three explanations for the lack of child care. Governments could be preventing child-care centers’ reopening, but this seems unlikely with the virus waning. The other two are a lack of demand for them, which would indicate people not wanting to return to work, or an inability to staff them, which would indicate that the former workers do not want to return.
As would be expected, the workers most unwilling to return are the lowest-compensated workers. Teenagers (9.9 percent unemployment) and those without a high-school degree (10.2 percent) have the highest unemployment rates because enhanced unemployment benefits make up a larger percentage of their former wages.
The Left, seeing the lowest-skilled with the highest unemployment rates, also see this as a reason for additional unemployment benefits. With that, the cycle of government impact on the private sector is completed.
What America has seen is a rapid and massive intrusion on the private sector, unprecedented except in wartime. The federal and state governments responded to the pandemic with lockdowns; their efficacy and efficiency can be debated, but their negative effect on the economy, beyond the virus itself, is clear. Government responded to its own lockdowns measures with massive aid. The efficiency of this response is equally debatable, but its slowing of America’s return to work is clear.
Almost a year and a half and $5.3 trillion later, America has a recovered economy but high unemployment and record job openings. It also has a case study in what government can do to the private sector in short order. In government’s pursuit to solve the problem its lockdowns created, they created more.
J.T. Young served under President George W. Bush as the director of communications in the Office of Management and Budget and as deputy assistant secretary in legislative affairs for tax and budget at the Treasury Department. He served as a congressional staffer from 1987 through 2000.
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