March 26, 2009
RALEIGH — The latest increase in North Carolina’s unemployment rate should signal government leaders to stop pursuing policies that have no chance of improving the economy. That’s the assessment of a John Locke Foundation analyst with a Ph.D. in economics.
A new report from the N.C. Employment Security Commission lists the state’s unemployment rate at 10.7 percent for February, up a full percentage point from the January rate of 9.7 percent. North Carolina’s unemployment rate has climbed for 13 consecutive months. The February rate is the highest recorded rate since the state started keeping seasonally adjusted data, according to the ESC.
“As unemployment rates continue to rise, I hope lawmakers and administration bureaucrats notice that the policies they’re pushing are not helping the economy,” said economist Dr. Roy Cordato, JLF Vice President for Research and Resident Scholar. “What’s more important to note is that these policies have no chance of helping the economy. They can only delay economic recovery or make current economic conditions worse.”
Government officials approach the economic downturn from the wrong perspective, Cordato said. “The administration and Congress seem to think the answer lies in government trying to ‘do something’ in the form of stimulus bills, bailouts, and other massive increases in government spending,” he said. “Those actions amount to government meddling with an economy already plagued by problems created by the government in the first place.”
Years of government policies promoting easy credit have increased the money supply artificially. This situation distorted investment and production decisions and ultimately led to the current crisis, Cordato said. “Now the Federal Reserve is adding to the problem by buying up massive amounts of government debt to provide more ‘liquidity’ to the system,” he said. “In other words, it’s increasing the money supply even further. What we are looking at is the perfect recipe for a 1970s style stagflation — high unemployment and high inflation at the same time.”
“Inflation is too much money chasing too few goods and services,” Cordato explained. “Because of the recession the quantity of goods and services is in a slump. Because of the Fed, the money supply is at an all-time high and rising. You do the math.”
Seasonally adjusted employment decreased by more than 17,000 workers to a total of less than 4.1 million, according to the ESC. Unemployment increased by 51,900 workers, with more than 491,000 workers now listed as unemployed. The number of workers who were unemployed, but actively seeking work, remains at an all-time high, according to the ESC.
Unemployment has increased by more than 253,000 people in the past year. The unemployment rate has more than doubled in the past year. The state rate in February 2008 was 5.2 percent.
Policy makers should resists calls for further intervention, Cordato said. “Unfortunately, plenty of people who understand little about economic principles offer the loudest pleas for government to ‘do something’ and increase spending,” he warned. “Government efforts to ‘do something’ caused our economic problems in the first place. More government intervention now would be like pouring water on a drowning man.”
The best policy for government to pursue now would be to reverse course, Cordato said. “Instead of taking money out of the private sector for bailouts and government stimulus packages, instead of inflating the money supply, the government should get out of the way,” he said. “Entrepreneurs need to see signs that it makes sense for them to save and invest. Those private-sector investments will create the kinds of jobs our economy needs to get back on track.”