Free Markets, Free People
Interesting, isn’t it? I really don’t have to put anything else up there to explain that number. Everyone in their brother will look at it and understand that the unemployment rate just rose from 8.2% to 8.3%. Its sort of like celebrities who are identifiable by only their first name. However, Obama and the Democrats certainly don’t want to grant that number that sort of status.
The U.S. economy closed out an otherwise weak second quarter by creating more jobs than expected, with 163,000 new positions added, but the unemployment rate rose to 8.3 percent.
Of course the job creation rate isn’t even at the break even point, even if up slightly.
But that doesn’t mean there aren’t those out there spinning the results:
"While the monthly gain is still relatively small by historical standards, it might help spark somewhat higher consumer optimism and spending," Kathy Bostjancic, director of macroeconomic analysis at The Conference Board, said in response to the report.
Yeah, “spark.” Like all the other “sparks” we’ve been told about. Like the 3 “recovery summers” we’ve been promised. Like the job saves/creation the stimulus was going to provide (Remember we’re supposed to be at around 5% unemployment right now. That’s what Obama promised if we gave him a trillion dollars to throw down the sewer. He claimed that without it unemployment would rise to … oh, wait, over 8%). And this month we’ve seen the official unemployment rate go a tenth higher.
As for the spin, let’s get real instead:
Despite the seemingly good news, the report’s household showed that the actual amount of Americans working dropped by 195,000, with the net job gain resulting primarily from seasonal adjustments in the establishment survey. The birth-death model, which approximates net job growth from newly added or closed businesses, added 52,000 to the total.
The household survey also showed 150,000 fewer Americans in the workforce.
Perking right along, aren’t we? Oh, and by the way:
June’s anemic 80,000 gain was revised down to just 64,000.
And does the 8.3% number really reflect the problem? Well, we’ve said for years that it understates it. And it does:
While the figures themselves have been gloomy enough, there is considerable debate over whether the Labor Department’s headline numbers present the true picture.
A measure that takes into account those who have stopped looking for jobs as well as those working part-time for economic reasons has hovered near 15 percent. The so-called "real" unemployment rate, or U-6 measure, is above 20 percent in Nevada and California.
On a national level, that more encompassing rate edged higher to 15.0 percent.
But if you listen to Obama he’ll tell you that what he’s done “worked”. Then he’ll try to convince you it would be much worse if it hadn’t “worked”. Really?
If you honestly believe that, then you have a convenient memory that has obviously forgotten all the promises made about the stimulus spending.
None of what he and his administration has done has worked, we’re in horrible economic shape, he’s had 3 plus years to do something that would help the situation (just one example is the oil and gas industry where approving Keystone and opening federal lands and the offshore to exploration would have crated thousands of jobs), and he’s failed.
Time to give someone else a shot.
And yes, it’s that simple.
UPDATE: Zero Hedge chimes in – basically the numbers aren’t as good as they’re being spun:
We got the pre-spun job quantity data already, where we learned that nearly 3 times the headline print was due to seasonal and B/D adjustments and is thus nothing but noise. Now we get the quality. As can be seen below, courtesy of Table A9 from the Household Survey, in July the number of part-time jobs added was 31K, bringing the total to 27,925, just shy of the all time record of 28,038. Full time jobs? Down 228,000 to 114,345, lower than the February full-time jobs print of 114,408. Once again, more and more Americans are relinquishing any and all benefits associated with Full Time Jobs benefits, and instead are agreeing on a job. Any job. Even if it means working just 1 hour a week. For the BLS it doesn’t matter – 1 hour of work a week still qualifies you as a Part-Time worker.
UPDATE II: Meanwhile at the White House, unicorns and moon ponies continue to prance. Alan Kreuger:
While there is more work that remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression.
UPDATE III: In case you need a reminder of “The Promise and The Reality”:
We’re talking Japan of “the lost decade” (now a couple of decades old). We harp about markets and government intrusions here and explain why they’re almost always “a bad thing”. Well, this is about market intrusion on a grand scale:
One of the consequences of all the stimulus and subsequent QE is that long time traders of our markets know they are screwed up. Consistent printing of money and 0% interest rates world wide have created their own economic imbalances. As the saying goes, there is no free lunch.
The government stimulus had a multiplier effect of 0. It did nothing for job growth or GDP growth in the US. Combine the inefficiency of US fiscal policy with the continued implosion of Europe, and you have a world wide malaise. In China, because of macro economic effects, wages are rising, costs to produce are increasing. Companies are also wary of both the poor property rights system and the lengthened supply chain. China is slowing down.
Remember all the talk about the multiplier effect of the stimulus? Yeah, disregard.
Meanwhile in the rest of the world the effects of all these market intrusions/manipulations are having their effect.
As the title says, we’re all Japan now.
Reality is a great test of belief. Sometimes, the things you believe are confirmed by experience. Sometimes they aren’t. And sometimes, reality is so at odds with what people believe, they have to be complete dolts to keep believing it. But, I constantly see people who believe things that simply can’t be true, and it bothers me.
Ultimately, reality tells you whether what you believe is true or not. And if reality conflicts with what you believe, it isn’t reality that’s got it wrong.
The Stimulus Cheerleaders
Basically, it’s the unreconstructed Keynesian crowd. Popularly led by Paul Krugman—who is a Nobel Laureate economist—they continue to argue that the problem with the economy is that the government simply didn’t spend enough to properly stimulate the economy.
There’s so much wrong with that, it’s hard to know where to start.
First, let’s accept that in a range of circumstances, it actually is true that the government can stimulate the economy via deficit spending. As long as there’s not too much debt in the economy as a whole, you can prime the economic pump through deficit spending, especially if you have a fiat currency. We’ve done it lots of times since WWII.
So, up to a point, even if you have a credit bubble that collapses, you can re-inflate it by essentially transferring that debt to the Government via deficit spending.
Up to a point.
As I’ve mentioned previously, the newest ECB research indicates that, in developed economies, once you reach a government debt load of about 100% GDP, it begins to drag on the economy, reducing economic growth by about 1% annually. So, what should be 3% annual GDP growth becomes 2%. And as the debt gets bigger, the drag gets bigger, faster.
Now, ever since Reagan and Congress began serious, constant deficit spending in the 80s, there have been worries that the government debt would begin to crown out private markets, and slow the economy. But it never happened.
Well, until now, as we crossed that 1:1 GDP to debt ratio.
Moreover, the idea that we haven’t spent enough to stimulate the economy is simply farcical. In 2008, the total national debt was less than $10 trillion. Now it’s over $16 trillion. So no matter whether or not we spent X amount of money marked "stimulus", we’ve spent so much money that we’ve added more than $6 Trillion in debt in just 4 years. That’s a lot of stimulus.
Arguing that we needed to spend more is…counterintuitive. If $6+ trillion won’t do it, then it probably can’t be done.
Besides, we already learned there was a fundamental problem with Keynesian economics when we had stagflation in the ’70s, which was supposedly impossible.
Here’s the thing about looting the system. Once you’ve looted it…it’s been looted. The Greeks seem utterly incapable of understanding that the system can’t continue to dole out benefits once you’ve looted it. It’s not the Germans that are making life difficult for the Greeks, by refusing to give them more money. It’s the Greeks that have made life difficult for themselves by spending themselves into a 1.28:1 Debt to GDP ratio.
Austerity, of course, isn’t pleasant—at least not the way they’ve implemented it. What they needed was public sector austerity, i.e., spending cuts, not private sector austerity, i.e., tax increases. Instead, they got both. What they needed were massive spending cuts, and debt repayment.
But, of course, in a country where practically every cop, teacher, and fireman is a unionized employee of the state, and half of the private citizens get some sort of cushy government benefit payment, much public sector austerity was a political non-starter. So they gave themselves a little public austerity and a lot of private austerity…and the economy collapsed. I mean, no matter what they did, they were in for a tough time, but they chose the most destructive path possible, then blamed it on the Germans.
The thing is, the Germans are historically…impatient with foreigners that they find troublesome. But the Greeks have decided that, having looted their economy completely, it’s the Germans’ fault somehow. The Greek position is, "We want to stay in the euro without worrying about our deficits, borrow money from Germany, never pay it back, and tell anyone who questions this to go screw."
The Germans, as are their wont, are unamused.
The list of odd things Californians believe that are directly contradicted by observable reality is, of course, far to long to be described here. A representative sample, however, includes:
- Maintaining a permanent class of illegal immigrants in modern-day helotage will not reduce employment among the minority citizenry. Giving them full access to state benefits and education will not strain the schools, medical system, or state budget.
- California must have the strictest environmental, tax, and employment regulation possible. This will not result slower economic growth, or a business exodus to another state. Similarly, stringent environmental regulation for the benefit of small fish or birds, and significantly reducing the water available for irrigation, will have no effect on farming in the central valley, and, hence, agricultural prices paid by consumers.
- It is completely possible to allow state employees to retire as young as 50, with an annual pension payment 85% of their highest salary, and fully meet our pension obligations, because the Dow will be at 24,000 by 2009, and 24,000,000 by 2099, thus making the latest round of pension increases perfectly sustainable through investment.
- If we’re taxing California workers 10% of their income, and we have a $16 billion budget deficit, the problem is that we obviously aren’t taxing enough. We should, therefore, tax higher income earners much more, because they can never leave California and move to Arizona. Or Texas.
California is just Greece with movie stars.
I could go on and on, but, you probably get the point.
The problem with reality is that it doesn’t care what you believe. It just is. The longer you ignore it, the more forceful it is when it re-asserts itself. But if I could point to one thing as the worst modern problem we have today, it would be an absolute refusal to acknowledge reality, accompanied by a steadfast refusal to recognize any of the warning signals it obligingly gives before its assertion becomes horrific, rather than merely unpleasant.
If you make the decision to ride this thing down in flames, reality will be perfectly happy to let you do it.
I know this will likely come as a huge surprise, but it appears that the almost trillion dollar stimulus bill, passed by Congress and signed into law by President Obama, has seen widespread fraud.
Much of the stimulus was earmarked for transportation projects:
But federal investigators have uncovered widespread financial management problems with many of the projects. As of early March, federal authorities were investigating 66 cases of alleged false statements, bid rigging, fraud and embezzlement, according to a report by Calvin L. Scovel III, the Department of Transportation’s inspector general. Justice Department lawyers are scouring 47 of those cases for potential prosecution, according to Scovel.
Twenty-five of those cases involve alleged fraud by minority-owned or operated enterprises that received preferential treatment in the awarding of the contracts, while 22 involve allegations of false claims. Investigators are also looking into nine cases of alleged violations of the prevailing wage law, three involving corruption and one case involving embezzlement, according to a report Scovel presented to the House transportation appropriations subcommittee on March 29. A spokesman for Scovel’s office declined to provide further details of the ongoing investigation, but stressed, “We take very seriously any allegations of waste, fraud, abuse or violations of the law.”
Then, of course, there were the usual nonsensical projects (most of which, I would guess, can probably be traced back to people with political connections):
Those included $4.7 million towards development of private supersonic jet travel years after the Concorde last flew, $2 million to help build a replica railroad as a tourist attraction in Nevada and nearly $1 million to help beef up security on a private entertainment cruise ship.
But back to the transportation projects. As usual, purposeful discrimination (i.e. not awarding projects to the lowest bidder but instead to the applicant that best fits the favored demographic) has led to the expected outcome – expected by anyone with at least a passing understanding of human nature:
The inspector general’s office voiced particular concern about the potential for fraud within the so-called Disadvantaged Business Enterprise program, which is aimed at increasing the number of government contracts awarded to minority-owned businesses. “There is a preference given to minority and female-owned firms and it’s to level the playing field, so to speak,” said the Inspector General’s spokesman.
A “typical scheme” involves a prime contractor persuading a minority firm to front for it in obtaining a major federal contract and then receiving a kickback of a set percentage of the overall contract, according to the spokesman.
Of course this isn’t a new scheme or the first time it has happened, but apparently it is a scheme that government, in their hurry to hand out money, was unable to thwart. And, of course, if government had simply made safeguarding the tax payers money the priority instead of trying to “level the playing field” it would have chosen the best qualified and lowest bidder to do these projects instead of basing their decision on skin color and gender.
But we’ve been over this a million times, haven’t we?
As usual, the government provides incentives to engage in fraud and then seem shocked when it occurs. Yet it occurs every time they provide those incentives, doesn’t it? It reminds you of a goose that wakes up in a new world every day. Unfortunately the incompetence of the goose is bankrupting the nation.
When Larry Summers and team were preparing a memo for Barack Obama on the planned stimulus, Christina Romer was a part of the effort. The New Republic brings to light a conflict within that team about how much stimulus they should recommend. As you recall, the final recommendation included two options. Option one was a “modest” stimulus in the rage of $550 to $670 of legislated money (about the same amount that Paul Krugman first recommended). The second option was for $850 billion and was the option Obama chose.
Summers mentions in the memo that in order to make a bigger impact on the “output gap”, a stimulus of over a trillion dollars was needed but most likely “not accomplish the goal” of reducing the “output gap” because of the “impact it would have on markets”.
Romer, on the other hand, felt that closing the “output gap” was much more important than the impact such a move might have on markets and recommended a much higher stimulus. How much higher? Approximately twice the level of the highest option presented to Obama of $850 billion. That’s right, about $1.7 trillion dollars. Romer claimed that doing so would bring the unemployment rate to “5.1%”. But then, as we remember, the country was promised that if the stimulus that was eventually passed was made law, unemployment would remain under 8%.
Of course it didn’t rising to 10.5%. However the prediction came directly from the memo Summers presented to the president – $880 billion stimulus would create 3.4 million jobs and keep the unemployment rate at 7.3%.. Neither of those came true and the administration was reduced to claiming “saved” jobs in its defense.
Romer’s predictions were even rosier. She believed that a $900 billion stimulus would create 3.75 million jobs and put the unemployment rate at 6.6%. Again, not even close.
Yet, when you read the comments of others out there, you find some of them still implying that a larger stimulus would have been better for what ailed us. That our problem was the size of the stimulus, not its design.
Of course that’s patent nonsense. The stimulus failed because it was horribly designed and terribly executed. And it was aimed at the wrong things. It became a combination of slush fund for politicians and budget short-fall device for states. Where what little was aimed at it supposed purpose (creating jobs) it failed. We discovered that “shovel ready” was anything but. Additionally it was used to bail out industries government had no business bailing out.
Whether it was $900 billion or $1.7 trillion, those facts wouldn’t have changed one bit. About all that might have happened had Romer gotten her way is a few states might have been able to delay their financial reckoning for another year or so.
Noam Scheiber, the author of the TNR article (and an upcoming book on how the Obama White House “fumbled” the recovery) doesn’t go as far as to claim the larger stimulus would have been a better choice although he certainly implies it. He argues that Obama wouldn’t have proposed it because Congress – even a totally Democratic Congress – wouldn’t have passed a $1.8 trillion dollar stimulus.
However, he argues, the inclusion of the higher stimulus number would have gotten Obama to “have felt a greater sense of urgency had he better understood how far he was from the ideal.”
First, I don’t agree that a Nancy Peolosi/Harry Reid controlled Congress wouldn’t have done exactly that, i.e. passed an almost $2 trillion dollar stimulus package. One only has to remember how they steamrolled the health care bill through to doubt such a thing couldn’t have happened with a larger stimulus. Secondly, it is highly debatable that Romer’s number was any sort of an “ideal”.
It was, at most, a “best guess” and given her predictions of the effect of a $900 billion stimulus (the size eventually passed) on job creation and unemployment, it is a suspect “best guess”.
And finally, regardless of the numbers proposed, it was a terribly designed and executed program that redefined “waste, fraud and abuse”. Doubling that wouldn’t have made it better.
Unlike some out there lamenting Summers refusal to have included Romer’s recommendation, I applaud it. That doesn’t mean I agree with the number he came up with, but to use Washington DC budgetspeak, he “saved” us about a trillion dollars.
Seriously out of touch:
Three days after the U.S. Department of Labor reported that the national unemployment rate had ticked up from 9.1 percent in May to 9.2 percent in June, President Barack Obama said that the loss of jobs in the public sector is “evidence” that his $830-billion economic stimulus legislation worked.
“Now, without relitigating the past, I’m absolutely convinced, and the vast majority of economists are convinced, that the steps we took in the Recovery Act saved millions of people their jobs or created a whole bunch of jobs,” Obama said at his Monday press conference.
Except he can’t point to anything to prove his point. What we do know, however, is much of that money went to pay down the debt of the various states, which is hardly likely to create jobs. We also know it was spent on things like “Operation Fast and Furious” which certainly didn’t lead to any jobs – at least here in the US.
So this is the only place he has to point:
“And part of the evidence of that is as you see what happens with the Recovery Act phasing out,” he said. “When I came into office and budgets were hemorrhaging at the state level, part of the Recovery Act was giving states help so they wouldn’t have to lay off teachers, police officers, firefighters. As we’ve seen that federal support for states diminish, you’ve seen the biggest job losses in the public sector–teachers, police officers, firefighters losing their jobs.”
Or, ”we didn’t save anything, we just delayed, for a short time, the inevitable.”
That makes it hard to claim that the stimulus “worked”. Public sector jobs don’t contribute to the economy – they’re a drain. Oh sure we’ve decided they’re a necessary expense, but they don’t contribute to the economy the way a private sector employee does. What has been said for years is we can’t afford the overall expense of government – that it must cut back to “necessary” and drop the “unnecessary”. There was the easy way to do it (when the economy was good) and had they done so state governments would have been in better shape when the downturn hit. But they didn’t. Government has a tendency to expand when revenues increase, not contract. So when revenues contract, they are unable to fund the excess.
So the stimulus didn’t create or save jobs, it funded the excess jobs states and localities should have shed long ago as “unnecessary” and, more importantly, “unaffordable.”
Look, this unemployment problem is the beast that will devour Obama and he knows it. But if this is the best he can come up with, he’s in for a very long and bumpy re-election campaign, at least when it comes to this subject.
That’s the spin from the White House and its supporters, or has been for quite some time. The story goes, “if we hadn’t passed the stimulus bill, we’d have seen even worse economic performance than we have and we’d have worse unemployment to boot”.
Investor’s Business Daily (IBD) took a look at the claim and found it … wanting.
White House economists forecast in January 2009 that, even without a stimulus, unemployment would top out at just 8.8% — well below the 10.8% peak during the 1981-82 recession, and nowhere near Depression-era unemployment levels.
The same month, the Congressional Budget Office predicted that, absent any stimulus, the recession would end in "the second half of 2009." The recession officially ended in June 2009, suggesting that the stimulus did not have anything to do with it.
Now we can argue the unemployment numbers and whether or not the real number of unemployed is approaching the Depression-era level (it’s not), but what can’t be argued are the forecasts from that time. Obviously, the supporters of the stimulus knew of these forecasts and believed that with the stimulus we could come in well under those numbers.
As it turns out, unemployment shot past 8.8% and the recession ended exactly as forecasts said it would without any stimulus. That makes it a bit difficult to argue the stimulus had a positive effect. In fact, it can be argued that it may have had a negative effect. But, there are also those who claim it would have been “a lot worse” without it, not to mention those who claim it was too small to begin with.
But that’s unsupportable in the face of the economic forecasts.
The argument is often made that the recession turned out to be far worse than anyone knew at the time. But various indicators show that the economy had pretty much hit bottom at the end of 2008 — a month before President Obama took office.
Monthly GDP, for example, stopped free-falling in December 2008, long before the stimulus kicked in, according to the National Bureau of Economic Research. (See nearby chart.) Monthly job losses bottomed out in early 2009 while the Index of Leading Economic Indicators started to rise in April.
So looking back we see all the indicators of an economy trying to begin a recovery. Yet here we are still struggling and we spent a trillion dollars of borrowed money in the meantime on goodness knows what.
One other thing to keep in mind – the establishment of the most hostile climate toward business I’ve ever seen from government in my lifetime began about this time as well.
No, per IBD, it appears if there’s any credit at all for saving the country from depression, it should go to the other guy:
Also often overlooked is that a tremendous amount of stimulus already was in the economy when Obama took office, including President Bush’s $150 billion stimulus, two unemployment benefit extensions and $250 billion spent on "automatic stabilizers."
More importantly, the Bush administration pushed through the controversial $700 billion TARP program (which Obama sustained), while the Fed pursued an aggressive anti-recession campaign by, among other things, effectively lowering its target interest rate to zero.
Now agree with it or not (not – I’m still not convinced it was necessary), and buy into the “saved us from depression” or not (not – we’d have gotten over the pain much more quickly and wouldn’t be at the beginning of a “lost decade”), it appears that economic history is being revised here. The Obama stimulus was a latecomer to the party. Most of the action had already taken place. What Obama and his administration did was create a hostile business climate. The business community reacted by sitting on its hands and its money waiting for a clear signal (one they’ve yet to receive) that they’re not going to be taxed and regulated to death.
But Obama save us from a depression?
Just for the record, It doesn’t appear to be the case.
I’m increasingly leery of the worth of the information put out by the CBO simply because in many cases it seems to fit the definition of GIGO. This would be one of those instances. CBO now claims that the $821 billion “stimulus” money saved or create “between 1.4 million and 3.5 million” jobs.
Really? Can’t narrow it down any closer than that? Well no, because:
This estimate seeks to state the net impact the stimulus had on the number of people employed in the United States as a result of the stimulus, taking into account not only the new jobs believed to be created and the existing jobs believed to be killed by the stimulus, but also the existing jobs that were saved that otherwise would have been lost.
It is all about estimates based on some sort of criteria that isn’t clear to anyone apparently. And it certainly isn’t centered on hard data – not with a range like that.
Here’s how I look at it. The administration said that if we didn’t pass the stimulus, the unemployment rate would hit 8%. If we did, it promised that the unemployment rate would stay below 8%. The stimulus was passed, the money supposedly spent and the unemployment rate went to 10%.
That, in my way of thinking, is stimulus FAIL.
Now they want to argue about how it could have been worse? That it was prudent to spend at least $228,055 per job they believe (because they’re obviously not sure) they may have created or saved?
Yeah, I’m sticking with “stimulus FAIL” and a total waste of borrowed money.
Krugman’s latest approach to demanding more deficit spending – er, excuse me, “stimulus” spending – centers on the impending election. The Democrats wouldn’t be about to see an electoral tsunami if they’d just listened to him and spent more. The economy would be recovering and we’d only be talking about nominal losses in the mid-term as is historically the case with just about every President.
The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.
And he further states:
If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.
In fact, when you look back at the spending forecast that accompanied the Obama plan, you’ll find something very strange (as we’ve pointed out before). You’ll find that it spent more than Mr. Krugman said was necessary at the time:
All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.
It should be huge, huge I tell you! $600 billion at least. We ended up with $900+ instead new figures show. It was 50% bigger than Krugman called for but, now, it was “totally inadequate”.
If you, like me, have essentially turned off the one-note bleat from this guy it is because other than calling for more spending he never, ever reviews his work or analyzes the results of someone actually following his advice. It was huge, it was more than he asked for, and it FAILED.
Has that sunk in yet, Mr. Krugman – your suggestion was less than what was spent and the result was an increase in unemployment and a decrease in economic activity. That, to most, means the idea of a “huge” amount of deficit spending did not have the effect you and the administration claimed it would. It. Failed.
Unlike Mr. Krugman, most of us have come to terms with the Einstein definition of insanity and resist doing the same thing over and over again expecting different results.
Obviously that’s not the case with Mr. Paul “one-note” Krugman. Tuning him out is a perfectly acceptable reaction to his ceaseless call for more deficit spending.