August Jobs Report

The August Jobs report came out a few days ago. Here is one of my two favorite charts, showing the depth and length of the employment recession:

Employment Recession Aug2012

And here is the second, comparing unemployment with the Obama Administration prediction:

Romer-Bernstein August 2012

Click on them to make them bigger.

Apparently the second graph is also a favorite of  James Pethokoukis because he uses it often, most recently in his article titled “The awful, awful August jobs report” where I lifted the one here rather than update my own.

Pethokoukis points out that even though the unemployment number improved, if we counted the workers who dropped out of the labor force this month the unemployment rate would not have improved but would have been slightly worse than last month. Moreover, if we count all the unemployed workers who dropped out of the labor force since Obama took office the unemployment rate would not be 8.1% but would be 11.2% (see the above chart). And if we add in those part-time workers who want full-time work, the U-6 number, the unemployment rate is 14.7% and even greater for the young and minorities.

The formal parameter that tracks the workforce is the “Civilian Employment-Population Ratio” or EMRATIO. That’s the percentage of the adult population with a job.  In 2008 that number was 63%. Today it is 58.3%, just above Great Depression levels, as Pethokoukis says.

The Obama Administration and Obama’s media supporters claim that his economic policies have worked and that we have been adding jobs every month for many months. They also compare the job growth to the number of jobs lost at the beginning of the recession and call the difference a wild success by comparison.

But the 96,000 jobs added in August are fewer than necessary just to keep up with population growth. It’s the EMRATIO that tells the tale. Fewer of us working after four years of the start of a recession is no success, particularly when the average recession has lasted approximately 18 months and even the longest recessions are over within two years.

In addition, our economic growth is stagnating rather than accelerating, as it has done at the end of every other modern recession. The economy created more jobs per month last year than this year. GDP growth has been running about 1.8% or so for both years now, below even the 3% rate we usually have between recessions and well below the 6% and 8% growth we had coming out of the Reagan recession, which was even deeper than the present one.

Finally, both the Congressional Budget Office and Standard and Poor’s warn of an impending double-dip recession next year.

President Obama argues that things would be worse had he not acted. But he presents no economic theory and no data to support that statement. In fact, the policies advocated by the Administration and by most vocal Democrats include raising taxes and increasing regulations. There is no economic school of thought that supports raising taxes, on anyone, in a weak economy. According to the Heritage Foundation, the Obama Administration has been adding regulations at a record rate. These regulations are a drag on economic growth. But worse, the Obama-era regulations are particularly onerous and include Obamacare and Dodd-Frank, just to name two.

Heritage goes on to say: During the first three years of the Obama Administration, 106 new major federal regulations added more than $46 billion per year in new costs for Americans. This is almost four times the number—and more than five times the cost—of the major regulations issued by George W. Bush during his first three years. Hundreds more regulations are winding through the rulemaking pipeline as a consequence of the Dodd–Frank financial-regulation law, the Patient Protection and Affordable Care Act, and the Environmental Protection Agency’s global warming crusade, threatening to further weaken an anemic economy and job creation.

The other day, I heard a political commentator say that there seems to be no solution to our economic troubles. We’ve tried stimulus with limited results and the Federal Reserve has lowered interest rates to near-zero levels with little effect. Well, I guess he was correct if we are forced to limit ourselves to solutions that grow government.

Our weak economy is the predictable result of an Administration fixated on Keynes and central-planning. President Obama is fond of saying that Republicans want to institute the same policies that got us here. He never explains what he is talking about. Democrats have even claimed that economic growth is a result of high taxes and high spending and increased regulation.

Here’s an explanation of why the stimulus did not, and can not, help the economy:

Here’s a larger version of the graph:

Government Spending, Quarterly 1952 - 2008

For me, the belief that more spending grows GDP is like believing that having your shiftless uncle move in with you and eat all your food, drink all your beer and borrow money will make your life more prosperous. But we don’t have to argue theories. We’ve done the experiment. Democrats have been true to their ideas since winning Congress in 2006 and the result is the longest period of 8% and worse unemployment since the Great Depression.

In fact, if spending money cured recessions, we would never have had a recession in the first place because the Bush-43-era was also one of increased spending and large deficits. Any argument made to defend big spending as a cure for recessions has to explain that fact.

But what if we kicked our shiftless uncle out, or at least put him on a diet? What if we were to cut Federal spending, which is a an all-time high as a percentage of GDP? What if we were to cut or even eliminate capital gains taxes? What if we were to lower personal income taxes and bring corporate tax rates into line with other industrialized nations? That would be the equivalent of giving us each more money to spend and invest, which is how economies grow.

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