President Carter called it economic "malaise," President Clinton says we are in a "funk." But the reasons for the decline in living standards for U.S. families while they were on the watch lies not in the stars, but in their policies.

Government programs, promoted with the promise of prosperity, have not worked.

• In the period from 1947 to 1973, real family incomes for all income groups rose during those prosperous years.

• The malaise that Carter complained of occurred in the 1973-1982 period when families lost economic ground because incomes stagnated.

• But during 1982-89 - the Reagan years characterized by less taxation,spending and regulations - real family income resumed its upward momentum.

• The "funk" years started in 1989 and coincided with higher taxes, expanding regulation and increased government spending.

Under the politics of class warfare, critics say, liberals are happy even when incomes fall for most Americans - so long as they can tax the rich. But in what conservatives call their politics of envy and jealousy they hurt everyone.

The only way to turn the economy around is to follow a true growth agenda: slash spending, cut taxes, and remove regulatory burdens.

• The unemployment rate has averaged 6.9% since the explosion in Great Society spending and taxes in the early 1970s.

• It had averaged only 4.9% between 1947-73.

• Real growth, which averaged 3.8% in the 1947-73 period, now averages only 2.4%.

• The only time during which growth has approached 4% for any extended period was that same 1982-89 period when the economy was unshackled from its burdens.

Source: Senator Connie Mack (R-FL), "Out of Malaise, and into a Funk," Wall Street Journal, November 6, 1995.

Economic Growth And Payroll Taxes

Experts are now trying to explain today's sluggish wage growth and other economic conditions. While targets chosen for political motives, such as foreign competition and greedy corporations, get much of the blame, two other items deserve special scrutiny: the sharp increases in Social Security and Medicare spending.

• In 1955, the median single-income family paid less than 4 percent of its total income in payroll taxes -- including both worker and employer payments -- but today the figure is close to 15 percent.

• More than two-thirds of workers fork over more in payroll taxes than income taxes, when employer contributions are included

• In the past nine years, mandated benefits as a share of total compensation have grown 11 percent.

As a result, workers are not able to save as much, which means a lower investment rate. This, in turn, leads to fewer jobs -- particularly low-wage jobs since these "labor taxes" raise the cost of hiring workers. All these costs distort the economy.

• One study found the Social Security payroll tax skews the labor market and imposes a loss of about 1 percent of each year's GDP in perpetuity.

• Further, it has helped depress the national savings rate -- from 12.3 percent in 1950 to only 3.5 percent in 1994.

• This has led to a loss in national income of more than 5 percent of GDP.

Others point out that senior Americans are spending and consuming more now than in the past, relying on Social Security and Medicare to protect them financially. In 1960, about 16 percent of older Americans' wealth was made up of annuities. Today it's more than half. According to one economist, "We are taking from young savers and giving to old spenders." Unfortunately, the 12.4 percent of income taken from workers isn't invested as wisely in Social Security as it could be in the private sector.

Source: John Merline, "One Way Government Stifles Growth," Investor's Business Daily, April 9, 1996.

But better farming technology and the demands of the free market fed the masses. Now a new alarm has been sounded by a United Nations report: for the first time in history more than half of all people live in cities, up from one-third 50 years ago.

But that is simply a function of growing economies.

• When the U.S. was a developing economy, fewer than one in 20 lived in cities; now more than three in four do.
• Doomsayers predicted the cities would become sinkholes of poverty and filth, ignoring the fact that rural areas often had poverty and filth -- and no jobs.
• Many of the governments now decrying overpopulation in the cities forced people to go there by controlling food prices so severely no one could make a living from the land.

Another reason for the population boom in cities is that people are staying healthier and living longer. Housing and nutrition have gotten better. But rather than seeing more people as an asset, the UN report sees them as a burden. That's understandable in a perverse sort of way.

Most countries stifle people's ability to earn a living by burdening the private sector with taxes, red tape, corruption and public monopolies. Rather than freeing up their abilities to create wealth, governments keep people from creating wealth then blame them for costing too much.

As for the appalling living conditions in many cities around the world, they stem partially from the universal dislike of landlords that was turned into law. Landlords were slapped with rent controls and heavy regulation, hurting those who need cheap housing the most. It's worse when, as is often the case, housing is state-owned. Then, there is no incentive to improve someone elseÕs property. Too often the crisis of the cities represents the failure of government.

Source: Perspective, "Malthus Lite," Investor's Business Daily, June 14. 1996.

Two recent studies, while using slightly different methodologies, have come up with the same conclusion: economic freedom is necessary for economic prosperity, and even the freest and wealthiest nations can become more wealthy if they become more free.

A Heritage Foundation study uses 10 unweighted factors (including trade policy, taxation, regulation, monetary policy and government consumption of total output) to measure economic freedom in 142 countries.

The Fraser Institute study measures levels of freedomin 102 countries using 17 weighted factors in four major areas; monetary policy and inflation, government operations and regulations, takings and discriminatory taxation, and restrictions on international exchange.

In both studies, lower taxes, lower inflation and less government regulation equal more freedom. Both demonstrated that there are no economically free countries that aren't wealthy, and no unfree countries that are. High marginal tax rates not only reduce economic freedom, they act as a disincentive to work and to produce, which in turn stifles growth.

Included in the findings:

• Six countries consistently ranked high in the Fraser Study: Hong Kong, Switzerland, Singapore, the U.S., Canada and Germany.

• Their average 1994 GDP per capita was $16,599, and their real GDP per capita grew 2.6 percent annually between 1980 and 1994.

• Nine nations invariably did poorly: Somalia, Zambia, Hungary, Romania, Brazil, Syria, Uganda, Zaire and Zimbabwe.

• They had an average per capita GDP of only $1,954, and real per capita GDP dropped by an annual average of 1.1 percent from 1980 to 1994.

More impressive were the results of countries which improved freedom. Seventeen countries that most improved economic free during the rating period saw real per capita GDP growth by 2.7 percent from 1980 to 1994.

Source: Charles Oliver, "Does Freedom Make Economies Grow Faster?" Investor's Business Daily, April 5, 1996.