Thirty-one months after the start of the recession, last week’s jobs report for July was a fiasco. The Labor Department reported yet another 131,000 jobs lost in July. The Department also revised the June report downward to show 221,000 jobs lost that month from 125,000. The unemployment rate remained at 9.5% only because 181,000 additional discouraged workers left the work force, and so were not counted as unemployed. That makes one million who have fled the work force since April.
As this column has repeatedly noted, the historic data recorded by the National Bureau of Economic Research shows that the average recession since World War II has lasted 10 months, with the longest previously being 16 months. What is President Obama’s excuse for still losing hundreds of thousands of jobs 31 months after the recession began?
The July labor report records the army of the unemployed at nearly 15 million. The long-term unemployed, defined as those unemployed for more than 6 months, remained stuck at nearly 7 million, the highest since the Great Depression. The number of additional workers employed part time for economic reasons stood at 8.5 million. The Bureau of Labor Statistics (BLS) defines these workers as those who “were working part-time because their hours had been cut back or because they were unable to find a full time job.”
Another 2.6 million were defined as marginally attached to the labor force, including discouraged workers who had given up looking for work. The BLS explains that these individuals “wanted and were available for work, and had looked for a job in the prior 12 months.” But they were not counted as unemployed because they had given up looking for work during the prior 4 weeks.
The army of the unemployed and underemployed consequently totals nearly 26 million. This would add up to an unemployed and underemployed rate of 16.5%, more than 2 ½ years after the recession started.
Moreover, major components of the Obama/Democrat political base are getting whacked hard. The African-American community is suffering a depression, with unemployment stuck over 15% for over a year now (15.6% in July). Obamanomics is proving to be the most effective anti-immigration policy in history, with Hispanic unemployment stuck at 12.1% in July. Young voters are particularly suffering as well, with teenage unemployment at 26.1% in July.
The Collapsing Work Force
But the headline jobs and unemployment numbers don’t give a complete picture of America’s suffering under President Obama’s neo-socialism. In yesterday’s Wall Street Journal, AEI Vice-President Henry Olsen examined the complete revelations provided by the civilian-employment population ratio.
As Olsen explains, while the unemployment rate measures the percentage of working age Americans who are actively seeking jobs but do not have one, “the civilian-employment population ratio measures the percentage of working age Americans who have a job, whether they are seeking one or not.” The trend of this ratio reflects the full extent of the missing discouraged workers who the agent of hope and change has left hopeless, the full jobs gap that has to be made up, and how far we are falling behind in terms of jobs that need to be created. Olsen reports:
Looking at this ratio, America is suffering its largest drop since World War II. When the economy was at its Bush-era height, in 2007, a little over 63% of adult Americans had jobs. Friday’s [July jobs] report shows that only about 58.4% [now] do, a decline of nearly 5 percentage points. While the unemployment rate remains steady at 9.5%, the employment-population ratio continues to fall each month. In April it was 58.8%, in May 58.7%, and in June 58.5%.
Olsen’s analysis is reflected in the accompanying graph, which shows how many jobs we have lost from where we should be with full recovery.
The Failure of Keynesian Economics
The economy is stuck in record postwar stagnation because since the beginning of this recession it has been addressed with throwback Keynesian economics, proven to fail long ago, rather than the more modern supply-side economics that proved so successful in leading to a 25 year economic boom starting in 1982. President Bush joined with the Democrat Congress to enact a Keynesian stimulus package in February, 2008 that had no discernable beneficial effect on the economy. President Obama, elected promising change, passed another Keynesian stimulus package a year later, only 6 times larger, which has again failed to generate any real recovery.
A stimulus package is “Keynesian” when it is focused on increasing demand, either by increasing government spending and deficits, or by “putting money in people’s pockets” to spend, through tax rebates or tax credits. (This is why Obama’s repeated claim that one third of his stimulus package was tax cuts is inapposite. They were all tax credits, and refundable to boot, which means they mostly involved checks going to people who had no further income tax liability to reduce.). The Bush/Pelosi February 2008 stimulus, and the Obama/Pelosi February, 2009 stimulus, were almost entirely composed of such Keynesian policy initiatives.
A supply-side stimulus, by contrast, focuses on incentives to increase production. Tops here is reducing tax rates, which enables producers to keep more of what they produce, thereby increasing the incentive to engage in productive activity, such as saving, investing, working, starting businesses, expanding businesses, creating jobs, and taking on the risks and burdens of entrepreneurship. Deregulation reduces the costs of such productive activity, further increasing the incentive to produce. Stable money maintaining stable prices is essential to maintaining the incentive to produce. Cutting spending and deficits leaves the money in the private sector to be used to increase production.
These were the components of supply-side Reaganomics, ending inflation and creating a record shattering 25-year economic boom. That boom ended in 2007-2008 because by then every one of these supply-side planks of Reaganomics had been lost.
Obama’s Business Cycle Peak
But as bad as the economy is today, enjoy it, because this is as good as it is going to get under President Obama and his policies. Before any real recovery has gotten underway, we are already past the peak of the business cycle, and headed back down.
Economic growth has steadily declined for almost a year now, from 5% in last year’s fourth quarter, to 3.7% in this year’s first quarter, to 2.4% in the second quarter. This is with President Obama’s comprehensive, across the board, increase in every major federal tax rate next year pumping up the economy this year, as those who can scramble to earn what they can this year, before the grim reaper arrives next year to take it.
Moreover, President Obama is riding the wave now of what Art Laffer has called the slingshot effect. That is the natural tendency of the economy to recover as businesses scramble to rebuild themselves, and workers seek employment, every day until something works. Eighteen months ago, I feared this natural recovery of the business cycle would leave Obama riding an early wave of glory, especially as the natural recovery is always stronger the deeper the recession. That wave of glory would have given him the power to plant even more seeds of America’s downfall before he was politically displaced.
But even I was shocked by how the comprehensive fallacies of Obamanomics prevented that from ever happening. Now, the sling shot effect is spent, and by so thoroughly embracing the opposite of every plank of Reaganomics, President Obama has laid the foundation for the opposite results of Reaganomics.
As mentioned above, President Obama’s policies already provide for increasing every major, top federal tax rate starting next year. Capital gains tax rates are scheduled to rise nearly 60%, the tax rate on dividends is scheduled to nearly triple, the top income tax rates are slated to spike by nearly 20%, the Medicare payroll tax will rise by 31% on upper income workers, and the death tax will be restored at 55%. That sharply reduces incentives to produce, save, invest, work, start and expand businesses, create jobs, and take the risks of entrepreneurship.
President Obama’s tsunami of reregulation starting next year will increase the cost burdens on production at least as much. Already Obama’s EPA is moving to saddle production with unreliable, high cost energy, now that cap and trade is stalled legislatively. The regulatory shutdown of offshore drilling, and even lots of onshore drilling, is already killing jobs quite directly, with even worse effects as the impact on energy output is felt.
The coming employer mandate of Obamacare is already discouraging hiring, with that getting much worse once the reality hits. All the regulatory burdens of Obamacare will increase rather than reduce the costs of health insurance. With the individual and employer mandates, that will effectively be another major tax increase. The financial regulatory reform bill adds further costs to finance, when small business needs more rather than less private finance.
Instead of stable money, the Fed is still recklessly pursuing an easy money policy that is keeping interest rates at record lows near zero for record periods, with gold higher than the S&P 500. There is only one way for interest rates to go from here. That is up, which will happen sooner or later, further discouraging investment, and sending the economy further into the downward spiral.
Finally, just the opposite of Reagan’s 1981 budget cuts, President Obama came into office exploding spending with his trillion dollar stimulus package, followed by the $400 billion Omnibus spending bill, the trillion dollar Obamacare legislation, a one third increase in welfare in just two years, and still more sons of stimulus that he and Congressional Democrats are still promoting and passing. That created record shattering deficits and debt, with the national debt slated to double now in just four years by 2012, and quadruple by 2020. All of this is siphoning out of the economy the private capital necessary to create new jobs, and killing long-term investment and jobs with the prospect of still higher taxes as a result.
Obama has nevertheless already taken his victory lap this recovery summer, proclaiming himself the savior who stopped another Great Depression. But in reality, he is creating another one under current policies.
Economic neophytes respond by saying not to worry. America suffered a deep recession in President Reagan’s first two years as well. But the economy recovered just fine, and his political fortunes with it.
The only problem with this analysis is the difference between capitalism and socialism. Today we even have bozos from such left-wing extremist fronts as the Center for American Progress arguing that cutting tax rates causes recessions and raising them is the cure.
What these superficial socialists fail to recognize is that the trends at this point in the Reagan years were all just the opposite of the above-discussed current trends portending further economic downturn. Tax rates were heading sharply down, not skyrocketing up. Regulatory burdens were heading sharply down, not sharply up. Interest rates were headed for declines, not spikes.
Moreover, Reagan was in the process of slaying a record Great Inflation that the Washington establishment had concluded could not be stopped. Reagan provided the support and political cover for the Fed’s historic monetary policy tightening that brought inflation down from 25% over the two years 1979-1980 to only 6.2% by 1982, and to 3.2% by 1983, breathtaking results given the previous 15 years.
Slaying that Great Inflation dragon, which left blood all over the economy, inevitably contributed to short-term downturn. Any college textbook will tell you that is the natural result of such an inflation reversal. But instead of slaying an historic inflation today, President Obama is laying the foundation for a new one.
Back in 1982, Reagan had already produced results. Besides the great inflation decline, Reagan had already enacted tax cuts and spending cuts, and begun the great deregulation. This was change the American people really did believe in. That is why in the 1982 midterms, the Republicans actually gained Senate seats, even while suffering normal mid term losses in the House.
The Silver Lining: Regime Change
The economy wants to boom. Business is holding $2 trillion in cash on its balance sheets just itching to get to work, produce, and earn real money. Ditto that for bank reserves. Even modest, Reaganite, free market policy moves could tip the economy into boom for several years, unleashing those funds.
But that is not going to happen with prep school Marxists and Limousine Leftists in control of Washington, from Obama to Pelosi and her socialist lieutenants to Reid and his new found East Coast loyalties.
The American people can make it happen this fall, however, not just by throwing the Democrat Left Congressional majorities out. What is needed for true regime change is a political earthquake that will truly shake the Washington establishment out of its rocking chairs. If Republicans not only take the Senate as well as the House, but in doing so win 60 to 80 House seats, enough surviving Democrats will scramble to distance themselves from Obama, which will allow Obama vetoes to be overridden on key issues from taxes to Obamacare. Obama is past his peak politically as well as economically.
The victory of a Republican for Ted Kennedy’s seat campaigning against his lifelong dream of socialized medicine should have been a harbinger for Democrats that this was possible. But they are so full of themselves that the lesson was lost on them.
The power is in the American people to save our country this fall. But that requires a zero tolerance policy for Democrats who insist that they are not like the others, but will still keep the Obama/Pelosi/Reid secular socialist machine in power. If we don’t get it, reality is going to spank us until we do.