"They approach the issue of economic growth as if it's a bill, it's a piece of legislation, it's a program, when it fact it is a philosophy." -- Douglas Holtz-Eakin, former CBO Director, speaking of the Obama Administration on CNBC's Squawk Box program September 2, 2011
This morning, the Bureau of Labor Statistics that the economy created zero net new jobs in August, far below an already weak estimate of 75,000 jobs. Job creation is generally thought to need at least 225,000 (give or take 25,000) jobs on a monthly basis to keep up with population growth and thus lower the unemployment rate. (Late yesterday, rumors of estimates below 75,000 jobs were partly responsible for the afternoon stock market sell-off.)
The combined revisions for June and July were negative 58,000 jobs, meaning the total job change reported today is a negative number.
The early stock market reaction was sharply negative, aiming for the Dow Jones Industrial Average to start the day down 200 points. Perhaps more important than stocks is the action in the bond market where the federal government's 10-year note is trading around 2.04%, in position for its lowest closing yield in decades. (The note had traded at a slightly lower yield in the past few weeks, but never ended a trading day at a yield this low or lower.) Early on Friday, Gold is up about $50, at a new record high around $1880/ounce. On the other hand, fears of a double-dip recession are hitting oil and copper prices, with October oil futures down about $3, trading around $86/barrel.
A substantial reason for the weak number in August was the strike at Verizon, which took about 45,000 workers off payrolls. However, this number was already factored into analyst estimates.
Health care gained about 30,000 workers, with other modest gains in mining, professional services, and temporary help services offsetting the striking Verizon workers and a loss of 17,000 government workers to get to a net change of zero for the month. Employment by local governments has declined 550,000 jobs in the past three years.
This report provides a high-tension backdrop for Wednesday's Republican debate and Thursday's "jobs speech" by Obama. The Republicans will have one of the biggest targets ever to aim at; it will be interesting to see whether they primarily direct their fire at Barack Obama or at each other.
Here's a preview of Wednesday:
Rick Perry: My state leads the nation in job creation while Governor Romney's state was 47th in job creation...but our real problem here is Barack Obama's total lack of understanding of business.
Mitt Romney: Governor Perry inherited a state with no state income tax, and I applaud him for not changing that. I inherited a state dominated by liberals and improved it. Beyond that, however, Rick was in office while other people created jobs while I actually created many thousands of jobs in the private sector. He's the spectator; I'm the player.
Jon Huntsman: My tax reform plan, which was endorsed by the Wall Street Journal last week, is the best job creation proposal anyone has put out. And please don't ask me about civil unions again.
Rick Santorum: Why isn't anyone asking me a question?
Then comes Barack Obama's Thursday night offering, the latest speech in a presidency full of sound and fury, signifying nothing. He's already poisoned his speech by outsmarting himself regarding speech timing, now going on the air in a time slot that must have Speaker of the House John Boehner (R-OH) smiling: 90 minutes before the kickoff of the first game of the NFL season, and at a time (7 PM Eastern) during which essentially nobody in the western half of the country will be watching.
Why would the president put himself in this position when he could speak any day at any time and probably get a bigger audience than he will on Thursday? Because he knows that the optics of his speech, namely lecturing Congress, is more important than the content which will likely include nothing particularly unexpected or inspiring. Barack Obama has already shown that his 2012 campaign strategy will be to run against Congress since he can't run on his own record. He'll blame Congress for not passing legislation, for not focusing on jobs, hoping that Americans don't notice that the Republican House of Representatives has passed "Cut, Cap, and Balance," a repeal of Obamacare, and a responsible budget, whereas the Democrat-controlled Senate has passed nothing of importance.
Obama will, in his angrier-than-Clintonesque way, wag his finger at Congress, making sure that his media people get dozens of photographs and video clips to use in future campaign commercials.
However, the Obama team is counting on voters continuing to blame George W. Bush for the disastrous economy, something which has worn thin among all but the most Bush-deranged liberals. Obama's first key economic advisers -- all of whom have now resigned -- told the country that if we passed the "stimulus," which is to say if we incinerated nearly a trillion dollars of taxpayers' money, unemployment would not surpass 8%. The American Recovery and Reinvestment Act, aka the "stimulus," became law in February, 2009. Not only has the never been below 8% since then, it has only been below 9% in four months during the subsequent 2½ years.
We've been told that the Obama Administration will propose spending federal money to rebuild public school infrastructure. While this isn't the worst idea to come from this White House, it bears scrutiny despite it's being "for the children." First, it is not a federal responsibility to build local schools owned and operated by municipalities, counties, etc. The moral hazard here is that funneling federal money to schools keeps those school districts from trimming their budgets the way they should, similar to the way the stimulus was used to hire teachers and thus put off the inevitable day of reckoning for school budgets bloated by unions and administrators.
Second, the idea is pure Keynesian economics, an approach which has failed everywhere and every time it is tried. Liberals like the school repair idea because, as former Obama economic adviser Jared Bernstein said, "It puts people, not machines, to work." However, as Milton Friedman pointed out, if you really want to create jobs with that thinking, perhaps we should just pay people to dig holes and pay others to fill them in.
But perhaps the best criticism of government make-work programs comes from The Onion in a piece entitled "." It concludes: "Other public works projects currently underway include the bulldozing of libraries, the burning of national forests, and the defacing of public murals, which will be followed by a massive plan to rebuild libraries, revive national forests, and repaint public murals."
It would be even funnier if it didn't sound so similar to what we've heard, and will hear again on Thursday, from Barack Obama. As long as Obama and people who have as little understanding as he does of business and entrepreneurship are holding the levers of power, there is no reason to expect substantial economic improvement.
On Thursday, the administration downgraded its estimates for economic growth and job growth, now forecasting unemployment stubbornly above 9% through the 2012 election. It also lowered its 2011 GDP growth estimate to 1.7% from 2.7%, and its 2012 GDP estimate to 2.6% from 3.6%. Perhaps the administration has realized the political risk of overpromising and underdelivering and is now trying to set a hurdle it can actually clear.
Remember that the administration's unrealistic predictions for declines in the federal budget deficit in coming years were based on unrealistic predictions for economic growth. Now that it's lowering growth estimates, it will have to revise its deficit estimates upward. This will put that much more pressure on Democrats to do things they are genetically incapable of doing, namely cutting spending and encouraging economic growth by getting out of the way of people who actually know how to grow something other than government.
The dismal August employment report is a particularly depressing way to go into the Labor Day weekend. It should focus the minds of voters on the folly of "hope and change" and highlight the contrast between pro-growth ideas espoused by Republican presidential hopefuls next Wednesday and the next step into the Keynesian cul-de-sac taken by President Obama the following night -- not that anyone will be watching him.