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Economic Engines – Spurring or Sputtering?

As we roll towards the election in November, I heard that “the economy is coming back.”  I’d like to look at the underlying economics as it relates to personal finances. There are three economic engines that we can choose from in 21st century America: 1) Entrepreneurship, 2) Employment, and 3) Entitlement.

First, entrepreneurship. According to Gallup, the U.S. now ranks not first, not second, not third, but twelfth among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than the United States. Many entrepreneurs are entrepreneurs out of necessity not desire and there are some studies that indicate that more startups are folding than succeeding.  My hunch is that no one talks about the birth and death rates of American business because Wall Street and the White House, no matter which party occupies the latter, are two gigantic institutions of persuasion. The White House needs to keep us in the game because their political party needs your vote. Wall Street needs the stock market to boom, even if that boom is fueled by illusion. So both tell us, “The economy is coming back.”

As far as employment is concerned, let’s look at a couple of statistics. According to the U.S News the largest employer in the US is the federal government with 10x the number of employees of the second largest, Walmart. The total number of jobs held by Americans in April was 122.7 million. In January 2006, total nonfarm employment stood at 120.8 million. That means that over the past decade or so, less than 2,000,000 jobs have been added overall. At the same time, the eligible work-age population (those older than age 16, who are not in the military or prison) has grown by 28 million.

Surprisingly, many economists say the economy needs to add 250,000 jobs monthly to begin to push down the unemployment rate over the long term. According to a recent article I read by Ben Baden, since the so-called “jobs recovery” began in March 2010, the first month the private sector added jobs since the recession, an average of 105,000 jobs have been added per month. This is well below the number needed to see a significant impact on the jobless rate. Patrick O’Keefe, director of economic research at accounting firm J.H. Cohn and former deputy assistant secretary in the U.S. Department of Labor. He explains that “If we’re not adding about 175,000 jobs per month, our employable population is losing ground. Whether they’re unemployed or discouraged job seekers, they’re not getting work.”

Finally, the entitlement engine. How is that doing? January 8, 1964, President Lyndon B. Johnson delivered a State of the Union address to Congress in which he declared an “unconditional war on poverty in America.” At the time, the poverty rate in America was around 19 percent and falling rapidly. This year, Ben Baden reports that the poverty rate is expected to be roughly 15.1 percent and climbing. Between then and now, the federal government spent roughly $12 trillion fighting poverty, and state and local governments added another $3 trillion. Yet the poverty rate never fell below 10.5 percent and is now at the highest level in nearly a decade.  Today, according to CNSNews the percentage of Americans now receiving a federally-funded program now stands at 35.4%. When you add pensions, unemployment, Social Security, and Medicare to the mix, the percentage of Americans relying on government for part or all of their subsistence is 49.5% of the American population.

While there is this definite feeling that “the economy is coming back,” it is still important to look at these underlying factors. In reviewing them it raises some concern and shows how important it is to look at the facts, not what the general consensus may be.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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