Almost a decade ago, we explained that America had become a bizarre kind of welfare state where, due to the premeditated vagaries of the tax code, hard work was punished.
As a reminder, back in 2012 we showed that it was increasingly lucrative – in the form of actual disposable income – to do the bare minimum, receive minimum wage and collect various welfare entitlements, than to work hard and aspire to a higher socio-economic status. This was graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantified, and explained by Alexander, “the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.”
Fast forward to today when thanks to “Biden’s Trillions” (which as we reported a month ago have sparked a historic labor shortage), any – not just hard – work is punished and instead America’s great unwashed masses are rewarded to do absolutely nothing.
Of course, the Biden admin will never admit to a full-blown socialist takeover of the labor force by the government’s handouts, and instead is blaming the collapse in people looking for jobs on such intangibles as fear of covid, mothers staying at home and who knows what else.
All of that is pure garbage .
For the real reason answer listen to the Chamber of Commerce, which last week urged an end to Biden’s pandemic handouts as “paying people not to work is dampening what should be a stronger jobs market and is hurting the overall recovery”…
… or listen to NFIB chief economist Bill Dunkelberg who said that “small business owners are competing with the pandemic and increased unemployment benefits that are keeping some workers out of the labor force”…
… or listen to restaurant legend Wolfgang Puck who said “I don’t think we should pay people to stay home and not work if there are jobs available”
… or listen to the National Owners Association (NOA) — an independent group of McDonald’s franchisees — which sent a letter to its members on Sunday that blamed hiring challenges on the “perverse effects of the current unemployment benefits” and said “when people can make more staying at home than going to work, they will stay at home. It’s that simple. We don’t blame them. We fault the system.”
But even if one is willing to dismiss all of the above as partisan criticism of the divine socialist regime of Joseph The Ancient, one just has to listen to what that paragon of democratic, liberal, progressive values and ideals, Steve Rattner (best known as Counselor to the Secretary of the Treasury leading the Obama Administration, and the man who singlehandedly overturned bankruptcy law in the Chapter 11 case of General Motors) who today tweeted that “with enhanced benefits, workers (take Pennsylvania, for example) can now make more on unemployment than they did at their jobs.”
Coming from a Democrat, this was the most damning assessment of Biden’s catastrophic fiscal policy to date.
But what was even more shocking is the chart that Rattner tweeted: similar to our chart from 2012, it shows that as of this moment, tens of millions of US workers, in jobs ranging from dishwasher, to hotel clerk, to preschool teacher, to anyone on minimum wage, can now earn more from unemployment than from their regular job.
Why would any rational person work under such generous welfare conditions? Or as the NOA correctly put it, “when people can make more staying at home than going to work, they will stay at home. It’s that simple. We don’t blame them. We fault the system.”
None of this should be news to our readers, as we have said all of this and more before. So instead of regurgitating the same old conclusion, we will give the podium to Rabobank’s Michael Every who captured best the absolute circular lunacy of what Biden has created, which will inevitably end in chaos:
Consider Friday’s shocking US payrolls number, which came in at only 266K when the market had expected 1,000K, with March revised down from 916K to 770K. Obviously this release blew market bets about Fed tapering and inflation out of the water. Indeed, there is now a stronger view that central banks can carry on pumping asset markets and commodity prices –and so headline CPI– in the hope this will magically generate wage inflation. It’s either an amazing fumble or hustle: opinions vary. Meanwhile, from a US Treasury Secretary who knows that (long) game well, the message is that the bad payrolls number means a need for more federal social spending.
The problem is that there is a lot of anecdotal evidence that the reason more people are not returning to the jobs that have re-opened for them is not “fear”, but that the combination of welfare packages they are currently on pay more than their old jobs did. If so, what we are seeing in real time is the impact of a high level Universal Basic Income (UBI) – and how is that working out for the economy? About as well as Dogecoin over the weekend.
Which brings us to Every’s 100% spot on conclusion:
Firms aren’t going to raise wages when they know the stimulus checks run out soon (and as labor generally has no bargaining power): but they can’t re-open until the workers come back. Yet if the government believes the lack of re-opening requires extended stimulus, then theoretically we can all sit like this for a long time… It’s ironic that just as central banks can’t see their miserly policy towards labour doesn’t work, Keynesianism Redux can’t see its generous policy maybe doesn’t always work either.
Who could have possibly foreseen that attempts to transform the US into a socialist nation would have an unhappy ending.
