I see that Megan McCardle thinks the unemployment numbers released today are enough to make her make her “cautiously optimistic” about the jobs picture. I’ll meet her halfway. I see room for caution, but not yet for optimism.
Ms. McArdle writes:
It’s very solidly good news: the labor force participation rate was basically unchanged, which means we’re seeing an actual decline in the unemployment rate, not a spike in the number of people leaving the labor force because they can’t find a job.
My reading of the numbers is precisely the opposite. It appears to me that teenagers, high school dropouts, and those with only a high school diploma, all of whom have high unemployment rates, did, in fact, drop out of the labor force, which led to the decrease in the employment rate.
I also think the numbers are skewed by the seasonal adjustments. The BLS adjusts the figures for seasonal changes, with extra weighting given to more recent years. Last November, the Lehman collapse led to the loss of 610,000 jobs–the largest ever recorded by the BLS–so I suspect the weighting for seasonal factors is skewed to the point where the jobs situation may look better than it actually is.
We do see an increase in hours worked of 0.6 hours, but that doesn’t really create new jobs, it just provides more hours for current part-timers.
However, temporary employment rose significantly for the 4th straight month, and it appears that the mass layoffs have petered out.
So, as far as I can tell, there may have been a bottom, but there are still some anomalies that need to be explained before I jump into the optimist camp.
And, of course, none of this even touches on the 800-pound gorilla in the room, which is monetary policy. The Fed’s policy of quantitative easing, i.e. massive increases in the money supply, still present us with hundreds of billions of dollars in low-velocity money floating around, all of which will have to be absorbed through higher interest rates, or through significant inflation. The possibility still remains that necessary credit tightening will strangle any nascent recovery over the next 12-18 months, and send the economy on a another downward leg.
I spoke with Tom Campbell for over 45 minutes on a range of topics, and I’ve split my posts on that discussion into two posts, one here and one over at The Next Right. Here at QandO, I’m going to cover the more policy-oriented topics, and over at The Next Right the topics have to do with new media, elections, and the politics of fiscal conservative governance.
It pains me to see my native California in such dire straits. The state is broke, farms are collapsing, and unemployment is over 12 percent. The public colleges that might help retrain a lot of those workers are slashing classes.
The tax and regulatory burden has finally overcome the state’s many natural advantages, leading its citizens to abandon the Golden State. And these are people who can’t be having an easy time selling their homes: California, one of the first to suffer in the real estate collapse, is still near the top of the heap in foreclosures.
California, as we say, has issues. I talked with Tom Campbell about some of the most important ones: the budget deficit, jobs, health care, education, water and infrastructure.
If you’re among the 15 or so in this country that believe this White House job summit will actually end up creating policies that produce jobs, I think Evan Newmark’s WSJ piece might dissuade you from that belief:
Now, I’ve never been to a White House summit, so I can’t say exactly what will happen on Thursday. But as a past Davos World Economic Forum participant, I’m pretty familiar with these kinds of VIP schmooze and snoozefests.
And here’s how it will likely play out. A senior White House official — perhaps the president — will give a welcome pep talk to the 130 gathered “summiteers.” He’ll ply them with thanks and stirring patriotic words.
But then he’ll urge them to not waste the day in conference fuzzy talk. Instead, the summiteers should turn words into actions and actions into jobs. After all, it is a “jobs” summit.
And then the summiteers will shuffle off to one of six working groups — where of course they’ll end up wasting the day in conference fuzzy talk.
It’s inevitable. Prepared remarks, banal anecdotes and empty debates are the stuff of these mushy forums. I can count on one hand the number of memorable moments from the dozens of my Davos sessions on technology super-revolutions, entrepreneurial innovation and world peace.
That’s because the VIPs at these things aren’t there to say or do anything unexpected.
Do you think that FedEx CEO Fred Smith and United Steelworkers President Leo Girard will somehow reach agreement that the best way to create jobs is to kill the union-card check?
Do you think that Randi Weingarten, President of the American Federation of Teachers, will suddenly serve up innovative ideas for trade unions to assist small businesses?
It seems unlikely.
And so the jobs summit will fail for the same reason Obamanomics is failing: The White House mistakenly believes economic growth and new jobs are created by society’s stakeholders — business, labor and government — cooperatively working together.
Like most of these events, this is a political stage show. It is a visual representation meant to convey the idea that a) the government is interested in your problems and, most importantly, b) it is here to help.
But the key to the failure of this summit, even if they were serious about creating jobs, is found in Newmark’s last sentence. The key to economic growth and new jobs aren’t the product of summits among “society’s stakeholders”. They never have been.
In fact, it’s pretty simple as he notes:
But that’s not the way capitalism works. It doesn’t take a village to create a new job. It takes a businessman trying to make another buck.
So why aren’t the businessmen out there trying to “make another buck”? While business is all about risk, the risks they take are rational. Businessmen aren’t at all inclined to take risks that can ruin them, especially in unsettled markets. Right now economy is very unsettled and government has huge tax laden legislative bills pending which will directly effect these businesses in a very negative way. And of course, there’s new and increased financial regulation pending which may effect their ability to get funds to expand their businesses and hire new workers. Thus they’ve concluded it would be entirely irrational to expand their business or hire in such an atmosphere.
Instead, they’ll hold off on hiring or expanding until the economy and markets are much more settled and they’ve had the opportunity to gauge the cost to them of all of this new legislation and regulation.
That said, the simple answer on how ease economic uncertainty and thereby create more jobs is kill health care, kill cap-and-trade and back off the increased regulation. Additionally, a corporate tax cut might help as well. All of that would certainly settle market down and give businesses an incentive to both expand and hire. But this job summit? Newmark nails it. Fuzzy talk aimed at the wrong solution. The best thing the government can do is back off and let the market get back to work. Unfortunately, that won’t be the solution the “summit” proposes nor will it be the policy the White House will adopt.
So, the CBO today, in surveying the success of the American Recovery and Re-investment Act (ARRA,. or as we call it, “the stimulus”, makes the following claim:
Economic output and employment in the spring and summer of 2009 were lower than CBO had projected at the beginning of the year. But in CBO’s judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of the ARRA.
It’s kind of hard to argue with that kind of “judgment”. Your “judgment” may vary, of course.
Not that it matters, because neither you, nor the CBO, have the math to back it up.
We’ll soon be treated to the spectacle of a White House job summit in December. Yes, almost 11 months into his presidency, Barack Obama has discovered that the public is most concerned with the economy and jobs – not health care. Not the environment. Ironically, it is most likely those two things at which the administration and the Democratic Congress have been working so hard to pass into law that have caused the job situation and economic outlook to remain so bleak.
While President Obama and congressional leaders say they would like to do more to spur job creation, economists and business executives warn that their plans to impose new health care and climate-change costs on corporations would have the opposite effect.
The initiatives, according to this analysis, are likely to overwhelm any positive impact on jobs from stimulus measures by giving businesses a reason to keep laying people off.
The House’s health care bill would raise the cost of hiring in a straightforward way: by charging businesses a new payroll tax of up to 8 percent if they do not provide health insurance to workers. The Senate plan would impose smaller fines on those same employers.
The House-passed climate-change legislation would not add directly to the cost of hiring, but would raise energy prices, which are a major cost of doing business. Economists say that many companies would react by hiring fewer people.
As we’ve mentioned numerous times, businesses want, in fact usually require, a stable economy before they begin hiring or expanding. They want to see trend lines headed up and they also want a climate that is conducive to expansion and thus hiring.
With these to major bills looming and, as the Washington Times notes, major new costs a part of their passage, businesses aren’t going to
commit to doing anything until they understand how those new costs will impact them.
So don’t hold out much hope for anything major to come out of the job summit. It’s mostly for show – a way to show concern. If the administration really wanted to see jobs created, they’d kill the two monstrosities in question and provide incentives to business (tax cuts, tax incentives, etc) to spur hiring. Instead we’re much more likely to see talk about a “second stimulus” and other big government “solutions”.
Just don’t forget the promise of the last “stimulus” – it would stop unemployment at 8% and “create or save” millions of jobs.
The official unemployment rate is 10.2%.
A very cool animated Graphic showing the change in unemployment over the last two years.
Click Image for Animation
Cross Posted at The View From The Bluff
It was inevitable (the party in power always gets blamed – eventually), but that doesn’t mean I don’t like the fact that this perfect storm may crest precisely at the 2010 midterms (although you shouldn”t count out the possibility of Republicans completely blowing the opportunity):
Nearly two years into the recession, opinion about which political party is responsible for the severe economic downturn is shifting, according to a new national poll.
A CNN/Opinion Research Corporation survey released Friday morning indicates that 38 percent of the public blames Republicans for the country’s current economic problems. That’s down 15 points from May, when 53 percent blamed the GOP. According to the poll 27 percent now blame the Democrats for the recession, up 6 points from May. Twenty-seven percent now say both parties are responsible for the economic mess.
“The bad news for the Democrats is that the number of Americans who hold the GOP exclusively responsible for the recession has been steadily falling by about two to three points per month,” says CNN Polling Director Keating Holland. “At that rate, only a handful of voters will blame the economy on the Republicans by the time next year’s midterm elections roll around.”
I’ll say it again – gridlock is good. It has a tendency to weed out all the extremist garbage and narrows the focus of legislation greatly. It also limits the power of the President, as it should be. So I’m quite pleased with this turn of events. And as you might imagine, the “current economic problems” is code language for “jobs”. No jobs, no peace, and a tough re-election campaign from Democrats next year.
Guess who the Congress is mad at?
It’s the economy, stupid.
As an aside, speaking of tough re-elections next year, John McCain is in a statistical dead heat with a GOP primary opponent next year.
Some tax facts from the Tax Foundation [pdf]to ponder while you work toward paying off the government’s first claim on your paycheck today.
Fact 1: Not everyone is doing that.
Today, 46 million tax filers have no income tax liability after taking advantage of all of the credits and deductions in the tax code—one-third of all tax filers. Obama’s tax polices, such as the “Making Work Pay” tax credit, will increase the number of non-payers to more than 63 million.
Or 63 million won’t , as Scott Hodge of the Tax Foundation says, have any “skin in the game”. Why should they care about tax policy or how tax money is spent?
Fact 2: Not all tax cuts/credits are good.
[T]he most politically popular tax cuts actually give the government more control over the economy rather than less. Even the credits enacted with the best of intentions—such as the $1,000 child credit, hybrid vehicle credit, or adoption credit—are bad tax policy because they attempt to induce people to make choices politicians think are right while rewarding select industries at the expense of others.
Or said another way, we again have government picking winners and losers, which few people would accept as something it should be doing. Politicians use their first claim on what you earn to reward you by not taking it if you do what they want. Is that your idea of the function of government?
Fact 3: High corporate taxes punish workers.
As the new study explains, there is a growing body of evidence that a large share of corporate taxes is really borne by workers—most of whom are not wealthy. Using statistical methods, the new study found that for every $1 rise in state and local corporate tax collections, real wages in that area fell by $2.50 five years later. The reverse is also true: wages rose by $2.50 for every $1 reduction in state and local corporate income taxes.
If wages are depressed in your particular state or locality, check out the corporate tax rate – as we’ve pointed out for years, corporations don’t pay taxes, they pass them on.
Fact 4: US corporate taxes are high.
Average OECD top corporate tax rate: 26.29 percent. Average U.S. top rate: 39.1 percent.
And of course after spending time demonizing corporations as rich and greedy, the present administration and Congress want to raise these taxes even higher. Then they’ll have another job summit and wonder why unemployment continues to get worse and wages are stagnant.
Fact 5: The rich actually pay more than their “fair share”.
Share of federal income tax paid by top 1 percent: 40.4 percent. Share paid by bottom 95 percent: 39.4 percent.
In fact, the rich pay more than 95% of the taxpayers out there – and the plan is to tap them for even more. Because, of course, they’re rich, and that automatically makes them “greedy”. Not in the plan is how the government will make up the revenue it plans on collecting with this new tax when the rich do what is necessary to protect what is theirs from the increased government looting.
Fact 6: Tax increases cost nearly twice the revenue raised.
“With every dollar of revenue, the proposed tax hikes cost the economy an extra 86 cents.”
Called “deadweight loss” high taxes distort the economy by artificially affecting decisions, such as:
…how much people choose to work by decreasing the financial reward to labor. High tax rates also may discourage savings, affect investment choices, and change the way households spend their money. For these reasons, economists recommend low tax rates and broad tax bases.
But that’s not at all what we now have – 63 million projected to be paying no taxes at all, corporate taxes higher than the OECD average and going higher and 1% of the population paying more in taxes than 95%?
If you can’t see what’s wrong with this picture and where it portends to leave us as we try to “recover” from the recession, then you’re being willfully blind. And, if some of this isn’t addressed and changed in the upcoming jobs summit, nothing is going to change to improve the employment situation. We have a tax structure that is anti-growth, anti-business and anti-liberty. The unfortunate thing is the present administration and Congress are working on legislation right now which will actually increase the tax burden exponentially and have projected trillion dollar budget deficits for the next 10 years.
How, given the above and the inevitable result of their unconscionable planned government spending spree (and taxes to support it) are we going to “grow” our way out of this?
Gallup’s latest poll says it is:
President Hugo Chavez’s popularity among Venezuelans has waned in recent years. Less than half of Venezuelans (47%) in August 2009 said they approved of Chavez’ job performance — down from 61% in late 2006 when he was elected to a second six-year term.
That’s not a good sign for a
dictator “president for life”. And what’s even worse is his inability to do much about what is causing that decline but attempt to distract attention by stirring up an existential threat (Colombia).
The reasons for this decline in popularity aren’t hard to figure out. Again, Gallup:
This year, 30% of Venezuelans said economic conditions in their city or area are improving, down from 47% in 2008 and 63% in 2007. Electricity and water shortages have become frequent, and violent crime is rampant in much of the country. This year, 23% of Venezuelans said they feel safe walking alone in their areas at night, the second-lowest figure among the 67 countries in which Gallup asked the question.
Politicians, whether socialist or capitalist, are held responsible for their country’s ability to provide the basics in life – especially when in the past those basics were cheap and plentiful. And, politicians are also held responsible for providing basic security. In all areas the socialist “Bolivarian revolution” is failing. And, because of actions by Chavez over the years to nationalize many industries, Venezuelans who supported Chavez are now beginning to see his government as more of a threat to them:
Conversely, concern about the heavy hand Chavez has demonstrated in the recent wave of nationalizations may be growing. The proportion of Venezuelans who said people in the country can feel very confident their private property will be respected by the government has dropped to 40% this year, from 52% in 2007. And 44% of Venezuelans currently agree that life is very hard for those who oppose the government, up from 36% in 2008.
As Megan McArdle points out, Chavez was able to paper over much of this when the price of oil was high and revenue plentiful, but at the present price and faced with the fact that because he diverted money from the state run oil company PDVSA to fund social programs, his golden goose is on life support. And Chavez has been forced to impose some unpopular restrictions:
President Hugo Chávez has been facing a public outcry in recent weeks over power failures that, after six nationwide blackouts in the last two years, are cutting electricity for hours each day in rural areas and in industrial cities like Valencia and Ciudad Guayana. Now, water rationing has been introduced here in the capital.
The deterioration of services is perplexing to many here, especially because the country had grown used to cheap, plentiful electricity and water in recent decades. But even as the oil boom was enriching his government and Mr. Chávez asserted greater control over utilities and other industries in this decade, public services seemed only to decay, adding to residents’ frustrations.
With oil revenues declining and the economy slowing, the shortages may have no quick fixes in sight. The government announced some emergency measures this week, including limits on imports of air-conditioning systems, rate increases for consumers of large amounts of power and the building of new gas-fired power plants, which would not be completed until the middle of the next decade.
Combine that with growing food shortages and rampant inflation and the picture is not pretty for our boy Hugo. And while his popularity remains slightly north of the critical 50% mark, his job approval rating of 46% portends a fall for that as well. Chavez, like all socialists, is finding out the hard way that they call them the laws of economics for a reason. You just wonder if we’ll learn something from his inevitable decline.
Since the Great Depression, the peak unemployment rate was 10.8% in November, 1982. We will, in all likelihood, set a significantly higher record for the unemployment rate in the next 12 months. Here are 12 reasons why the unemployment rate will reach at least 12%.
I would also remind you that if we currently reported the unemployment rate as they did in the 1930′s, our current rate of unemployment would be around 17.2% In any event, here are just two of the most compelling reasons why the job picture is going to remain very cloudy:
For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit…
But when we do start to see the economic clouds part in a more decisive fashion, what are employers likely to do first? Well, naturally they will begin to boost the workweek and just getting back to pre-recession levels would be the same as hiring more than two million people. Then there are the record number of people who got furloughed into part-time work and again, they total over nine million, and these folks are not counted as unemployed even if they are working considerably fewer days than they were before the credit crunch began…So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years.
There are other compelling reasons at the link, but the two above are enough to ensure that the unemployment rate will remain high for quite some time.