Dire straits.

• Author: Emord, Jonathan W.
• Position: ECONOMIC OBSERVER - American economy

MASSIVE FEDERAL spending and Federal Reserve manipulation of the money supply have created a false sense of stability in an economy that continues to labor under an enormous tax and regulatory burden that severely impedes the ability of small and medium-size businesses--the engines of employment and innovation--to sustain and enhance economic growth.

A true indicator of the dire state of the American economy is the workforce participation rate. Some 38.2% of Americans 16 or older who are not in the military and are not institutionalized are not in the workforce. That figure is staggering. In other words, 92,270,000 Americans who could be working are not. Many of those are on Federal assistance. The workforce participation rate is the lowest it has been since 1978, a year reflective of Pres. Jimmy Carter's wretched economic legacy.

It is no coincidence that the figure of those who are receiving some form of Federal assistance is roughly equal to the percentage of those not in the workforce. The overlap is substantial. It is a sober reality of the current regime that those who still are working must support through taxation a roughly equal number of individuals who are not. That condition cannot continue indefinitely. The nation either can maintain its tax and regulatory policies, in which case the figure of those who have dropped out of the workforce will continue to rise, or it can dramatically pare back taxes and regulation, in which case economic growth will return and those now out of the workforce will become employed in ever greater numbers.

A dynamic condition is created when such a large number of people have exited the workforce. As taxation and regulation continue to grow and force industry--particularly small and mid-sized firms--to delay expansion, sacrifice research and development, and avoid new hires or fire employees, the move to the welfare rolls continues and, as it does, Federal entitlement spending keeps growing, expanding the national debt and placing ever more pressure on the productive elements of society to bear the brunt of the increased costs.

That leads to a death spiral for the economy. At first the private sector falters under the weight of the burden and then it progressively collapses. As it does, less and less revenue enters tax coffers. As revenues dry up in government, debt skyrockets, and those offering social services via government contracts find it harder and harder to exist without substantial increases...