Econo-Misery and Three Econo-Myths
“It’s one thing to fall into a ditch. Quite another to paint and decorate the ditch and call it home.”
– Rich Karlgaard at Forbes.com, November 2
Private and government forecasters are conceding that the economy is in a funk and won’t improve much next year. The Federal Reserve’s most recent predictions are that economic growth in 2012 will be 2.5% – 2.9%, and that unemployment will still be above 8.5% at year’s end.
I would add: “If we’re lucky.”
Two observations put all of this into perspective:
- We are still in the midst of the worst post-World War II “recovery” — and you can barely call it that — on record. As Investor’s Business Daily pointed out in August, in every post-war downturn until the most recent recession, the economy’s output got back to where it was before the downturn began in three or fewer quarters. This time, we didn’t get over that hump for nine quarters. That’s three times longer than any other recovery since the Great Depression. Oh, and I almost forgot: The private sector is still smaller than it was at the end of 2007.
- Until Team Obama occupied the White House, the longest string of months during which the seasonally adjusted unemployment rate was greater than 8.5% was 22, from January 1982 until October 1983. We’re now at 32 months and counting. If the Fed’s prediction above is correct, the streak will be at 44 on Election Day next year, doubling the previous record. Primarily because of misguided Keynesianism on steroids, millions of the long-term unemployed, in many instances despite their best efforts, are seeing their skills diminish. Because the pace of technological change is so much faster now than it was during the 1930s Depression Era, we are arguably witnessing the greatest destruction of human capital in U.S. history.
Welcome to Rich Karlgaard’s ditch — except that it’s not your normal two-sided affair. While we could with luck eventually climb out on the right side, to the left there is only a steep cliff. Additionally, any number of possible earthquakes from, say, Europe, bankrupt U.S. cities, or elsewhere could bring the whole thing crashing down at any time.
Sadly, none of this matters to President Obama, his apparatchiks, or his establishment press propagandists nearly as much as their virtually all-consuming goal of achieving his reelection. That is why you can expect any number of expectations-diminishing characterizations of the economy — de facto ditch painting and ditch decorating — to emanate from the White House and to be dutifully repeated in the media between now and November 6, 2012. What follows are just three of them.
1. It’s unrealistic to expect economic growth of 4% or more.
Gosh, the last time I heard this one was during the late 1970s, when — imagine that — a failing first-term Democrat was in the White House. “Somehow,” after emerging from the ugly recession brought on by Jimmy Carter’s high-inflation, high-interest rate disaster, economic growth under Ronald Reagan averaged 4.4% per year from 1983 to 1988. In the first six quarters after the Carter-driven recession officially ended, annualized growth averaged over 6-1/2%.
Given the amount of underutilized though increasingly skills-deficient labor and the abundant fossil-fuel resources available if only the governmental willpower existed to allow us to go get them, growth of greater than 4% is not out of the question; in fact, it’s inexcusable that we’re not achieving it right now.
But there’s another key element of economic holdback about which the government and the press remain in denial.
2. Regulations really aren’t that excessive — and besides, they don’t cause jobs losses.
This is a real craw-sticker. At least twice recently, Christopher Rugaber at the Associated Press, which really ought to end the pretense and rename itself “The Administration’s Press,” has criticized candidate assertions during the Republican debates about how regulations are killing jobs. Rugaber’s most risible claim:
… Labor Department data show that few companies where large layoffs occur say government regulation was the reason. Just two-tenths of 1 percent of layoffs since Obama took office have been due to government regulation, the data show.
One hardly knows where to begin. Here are just a few of many valid counterarguments:
- Companies usually cite multiple reasons for layoffs and plant closures, and sometimes don’t mention regulations at all, even if they’re relevant. Take two paper company closures occurring in Hamilton, Ohio, just north of Cincinnati, during the past month. One company, in announcing 237 layoffs, cited “competition from Asia, rising costs of raw materials and uncertainty surrounding new federal pollution rules.” Is this one part of Chris’s 0.2%, or does it not count because the “pollution rules” weren’t mentioned first? Clearly, regs were relevant. The second company is terminating 133 jobs and will “transition manufacturing” to mills in another state. The coverage of their announcement doesn’t say a word about regulations, but since the second company’s plant is similar in age to the first company’s, pollution regs were also probably relevant there. Yet it won’t count in Chris’s calculations.
- Looking only at large layoffs is an obviously incomplete procedure. Small layoffs tend to happen at smaller enterprises, may affect more employees in total, and are more likely to occur due to increased regulatory costs.
- There are two well-known recent examples of regulations killing jobs that don’t directly involve layoffs. The Obama administration’s regulatory slowdown of Gulf of Mexico deep-water drilling permit approvals in the wake of last year’s BP oil spill is preventing over 10,000 people from getting back to work and causing some rigs to move, permanently ending related job opportunities. The Washington Examiner recently reported that a lawyer at the National Labor Relations Board, which regulates union-worker matters, was “joking” in an email “that the NLRB’s suit against Boeing would kill jobs in South Carolina” — potentially about 4,000 of them. Is that in your numbers, Chris?
- As I noted in October, “laying a worker off is not the only way to ‘kill’ a job,” as Rugaber would seemingly have us believe. Regulatory burdens can and do cause companies to reduce their workforces through attrition, not replacing those who retire, deciding to manufacture new products overseas instead of domestically, and hiring temps, seasonal, or part-time workers instead of full-timers.
3. The flat economy is hurting government employees, while the private sector is doing okay.
This claim was made by Harry Reid and dutifully regurgitated a short time later by Tom Raum at the AP in October. Seasonally adjusted public-sector employment didn’t stop growing until May 2009, the month before the recession ended. Federal non-postal employment has increased by 130,000 since Obama took office. The private sector, while gaining over 2.7 million jobs since the beginning of 2009, is still down by over 6 million jobs from its pre-recession peak, and is at the same level it was in the spring of 2004. By comparison, state and local government employment, both of which grew too much during the past decade and stayed artificially high through the recession, are back to where they were in early 2006. There’s no reasonable doubt that the greater pain by far is still in the private sector.
The White House and Congress should be doing everything they can to get the private sector fully back on its feet. But they’re not. That’s because the administration and congressional Democrats’ aim, as evidenced in Dodd-Frank, ObamaCare, and so many other legal and regulatory matters, is to permanently make the government a bigger and ever more intrusive part of the economy and every citizen’s daily life. That, dear readers, is not a myth.
Records have been kept since 1928 of the percentage of the population in the private sector workforce. It recently its all time low. Lower than any time during the Great Depression.
The inflation index is a factor in calculation of the GDP Three times in the last forty years the the method of calculating inflation has been modified, during Carter, Clinton and Obama. Do you see a pattern? A private statistics firm calculated the inflation for FY2011 that ended in October using the Carter pre-modification methods. It was 11% and indicated that the United States lost wealth and GDP in the last twelve months.
The country is sinking and the pumps are not being turned on.
What is PPACA (Obamacare) but a gigantic Rube Goldbergesque regulatory scheme? I have seen graphs that show an immediate slowdown in job creation following its passage. There is almost no way to avoid the ‘post hoc ergo propter hoc fallacy’ when discussing economics so I won’t even try. Besides what was the pressing need for all those waivers? My answer: a combination of political favoritism and a desire to avoid potential job losses.
Harry Reid’s myth is easily exploded with the following chart:
http://i43.tinypic.com/281dd0p.jpg
As you can see from this chart,
it’s true that in 2010-2011, private sector employment growth exceeded public sector employment growth.
But that’s nowhere near enough to compensate for what happened in 2008-2009, when public sector employment grew slightly while private sector employment practically collapsed.
Harry Reid is deliberately cherry-picking 2011 out of the 2008-2011 financial slump to make the numbers come out the way he wants.
On average, it takes the taxes of many taxpayers to pay the salary and benefits of a single public employee. If you want to protect the public employee workforce as Harry Reid claims, the best way is to take actions that help the private economy grow. Government can not create net private sector jobs because to give support to one sector, you must first take from the others. Instead, the best thing government can do is reduce the impediments to private sector growth. We have multiple examples of proven ways to do this. Lowering marginal tax rates for everyone has improved the economy every time it has been tried. Likewise, lowering the burden of government regulations stimulates business activity. You get more people working, you have more people paying taxes. That means you get more revenues that can be used to protect public sector jobs if that’s what you want to do.
And we still don’t know what Europe has in store for us. If the European economy goes down, we go down with it.
But, funny, you don’t hear far-left liberals like Obama say how wonderful the European welfare state is these days. The far left wanted America to be just like France, the very model of the European welfare state. They wanted all Americans to be just like them and have all of the many benefits they have, too. But now that both Greece and Italy are in the toilet, with Portugal, Ireland, and Spain not far behind, you don’t hear about how magnificent life would be in America if we were just like them.
If I were a Republican candidate, I would do everything in my power to tie the Democrats to what is happening in Europe. Well, Mr. Obama, you want to take us away from our Constitution and make us more like the Europeans? Well then, why aren’t you talking about the “glories” of Europe these days? And, to make things even better, the European countries are so weak militarily they couldn’t even take out Gaddafi without a lot (and I mean A LOT) of help from the United States. The French and the British couldn’t even overthrow a dictator from a small country where half of his own people were revolting against him. Good job, NATO. So why aren’t the Democrats saying THIS is what we should be aiming for? Make them choke on every picture of every riot coming out of Europe and say, “This is what you get when you ditch the Constitution and go for a European welfare State.”
I like your style! You are exactly correct and we need more people like you to talk this attitude up!
See the recent drivel that passes for an article in TIME for how the left will tee-up the arguement for more European-style involvment — buzzwords like ‘support’ and ‘investment’ to paint the out-of-context examples.
Pathetic.
Actually, an unrepentant Paul Krugman has been complimenting Europe’s welfare states all through this economic crisis. He even wrote how much more “humane” those European nations are, compared to America.
Krugman never lies. He just ignores data that contradicts his point of view.
but they do still say the welfare state is wonderful. we just aren’t reading what they read.
There are French people on “I told you so” victory tours in America, right now. Our leftists aren’t staying on the farm- they need to import Paree.
We’ll quickly be able to tell who belongs to the group formed to replace JournoList. One reason I watch MSNBC is to, rather than see what the captive media leftists have been ordered to report, to see what they’ve been ordered to stay away from.
Fast and Furious is one of those subjects that the left wing media doesn’t like; Larry Sinclair is one they won’t touch. Maybe, it’ll change when the dems take a look at someone other than Obama and the lefty media has to take sides.
Along with the “regulations don’t cost jobs” lie is a follow-up: “regulations cause employers to hire people so they can comply with regulations”.
Perhaps, at large companies. But even then, these are not productive jobs. They’re not creating wealth, just protecting it from regulators. So those jobs come at the cost of actual growth, and because of that *and* the relatively higher salaries those white-collar, nearly-need-a-lawyer jobs call for, likely cost multiple jobs in production and service.
Then there’s what I call “regulatory risk avoidance”. I’ve been in multiple meetings at the beginning of a project where the first question — asked multiple times — was “does HIPPA or SOX apply?” How much wealth creation is not being done because people don’t want to risk running afoul of some new regulation?
You’re right. I see a parallel to the Broken Window Fallacy where the original shop owner has to pay money to repair a window. To the shop owner, that’s a pure loss because he’s spending money to restore the shop to its original condition. That money is no longer available to grow the business or anything else.
In a similar vein, when an employer has to hire employees or consultants to comply with regulations, that’s money no longer available to do anything productive. As an example, my wife is a nurse and former office manager for an out-patient surgical practice. When the HIPPA regulations (regarding medical privacy) were enacted, the office had to spend thousands of dollars on consultants and complance costs. That was money that could’ve hired an additional productive employee instead. Multiply that by thousands of regulations being enacted each year and the costs to the economy are truly staggering.
“High-pay” is how I pronounce HIPPA. Help me start a trend.
There’s yet another flaw with the statement “Labor Department data show that few companies where large layoffs occur say government regulation was the reason” as a justification for saying that regulations don’t cost jobs. The issue is that the leaders of a company may not be aware of all the costs of regulation to them, or may be unwilling to blame regulations for political reasons. First, regulatory costs are not always direct — e.g., they may directly impact a company’s customers rather than the company, but this leaves their customers less money to purchase their products. Second, some regulatory costs are so diffuse or have been around so long that they are barely visible as “regulatory costs” — minimum wage laws, mandatory benefits, anti-discrimination laws, and so on. None of these are likely to cause mass layoffs, but they all decrease hiring at the margins. Third, companies don’t want to offend the regulators under whose yoke they must survive, so Pfizer is not going to cite FDA rules as a reason for a layoff, nor is a bank going to cite FDIC or SEC restrictions.
The way I see it, the regs aren’t the proximate cause, they’re the underlying stress that made the company weak in the first place. CEOs and HR departments only cite the recent precipitating factor- perhaps because there’s not much that can be done about the overhead burdens, or perhaps because it goes without saying (in their minds, anyway).
When a patient dies, there’s usually a direct cause of death listed on the death certificate and also place to write down the underlying factors- like “respiratory failure due to complications from cancer.” Sometimes there’s even a need to write in more causes. The death of a job is just like that- there are plenty of immediate causes, but the underlying illness is a poor regulatory environment.
If the economy weren’t already so sick from burdensome overhead, it could survive a great many more acute shocks to the system.
This is a balance sheet recession. Debt has to be worked off. We can reduce regulations and other things that hinder business, but let’s not kid ourselves. Most importantly, stop digging the hole bigger. It’s going to take time.
Yes, it is a balance sheet recession in the sense that we got over our heads in debt. However, the balance sheets in the private sector are generally getting better. Unfortunately, the government balance sheet is getting much worse, which is preventing a recovery. In any case, the only way to climb out of a recession is with increased production. Vastly slashing the regulatory state would remove some of the enormous barriers to production that are currently in place, while also saving the government money. We could start by dismantling the EPA, FCC, NLRB, HUD, and DOE (both of them). Not likely to happen, of course, but this sort of action is what any politician who is serious about jump-starting the economy should be looking to.
Not enough.
The environmentalists and NIMBY “community activists” have become so sophisticated that they know exactly which sympathetic judges to run to, in order to get injunctions to shut down major projects like the Keystone pipeline.
They’re now making economic and environmental policy through the courts.
We’re going to need the President and Congress to pack as many conservative judges on as many court benches as he possibly can.
No, when you remove the underlying laws/regulations, all the precedents go away.
The President and Congress don’t have the authority to invalidate state and local laws.
But the Supreme Court decided long ago that they do.
You note laying off a worker isn’t the only way to kill a job, and among other choices, employers turn to part-time, temporary or seasonal employees as an alternative.
Isn’t the “temp” sector the fastest growing private-sector category? More micro, small and medium businesses choose this option with each cartload of new regulations. I get it, it makes good business survival sense.
But we can all do the math. If small businesses create two-thirds of all new jobs and they’re choosing temp employees instead, we’re in for a world of hurt near- and long-term.
Also, a 2010 Small Business Administration study found it costs $3,000 more per employee for small businesses to comply with federal regulations than their larger counterparts. Meanwhile there are 4200 new regulations pending at the federal level.
Obama IS laser-focused on jobs. Unfortunately, he keeps dialing the setting up, from stun to knockout to kill.
Get rid of the 12-15 million illegal aliens and unemployment will be solved. That solution of getting rid of what the Left calls “undocumented” and portrays as refugees rather than the opportunistic criminals they are is too simple and unacceptable a solution for our politically correct and moronic Left.
Illegals have wrecked the economy and social system and this nonsense that they do jobs REAL American won’t do is nonsense. REAL Americans don’t pile 12 into an apartment and work for 6 dollars and hour to send money to their failed nations. We’ve been there and done that and still work hard. Just ask a Minnesota farmer or a supermarket distribution warehouse guy who lifts 3 1/2 million pounds a year.
Most migrant farmworkers are U.S. born U.S citizens – so much for that “jobs Americans won’t do” lie.
Abolishing the minimum wage would also help a lot.
People continue to focus on the unemployment rate instead of the employment rate. Not only are we at a post-WW2 record for consecutive months of high unemployment, but the % of working age people currently employed is at the lowest level since the depths of the 1982 recession, and is at levels last regularly seen in the mid-1970′s. Three decades of workforce growth were undone in a few years. Adding in the underemployed part of the workforce makes it even worse.
http://bit.ly/noJpIs
The reason for a recession is incorrect prices. People don’t take jobs because the wages for the jobs they can get are lower than they think they need/are worth. Of course if your boss offers you money that is too high, he goes bust.
Why are prices incorrect? Because we don’t understand that money has gone out of circulation causing deflation (5 dollars of work should now cost 2 dollars). In response to deflation, the government has created money from nothing. We see that, and expect inflation, so we demand a wage increase. (We expect the 5 dollars of work to now cost 6 dollars.) If we don’t get our wage increase, we keep looking.
If there’s deflation, why aren’t my expenses going down? Is the Consumer Price Index going down? I’d work for less, but I’ve been working for less for 10 years already. (Yes, my income is down 20% in 10 years, while the Federal employees that I work for have seen their salaries increase 33-78%.)
We keep hearing the incessant howl of massive corporate profits, but none of these folks mention this:
The regulatory cost to American business is higher than their profits. So, moving business to countries with lower regulatory costs can double profits with no other considerations.
ObamaCare the job killer
Puts upon main street business
- mandates
- new taxes
- new regulations
- uncertainties
Truly the worst legislation in U.S. history
Public Sector employment grew in ’09, because of the FedGov. Huge employment increase there. Stimulus money went to bail out States, so they could keep their employees. (It was supposed to go for “shovel-ready projects, but that, of course, was a lie.) When that money ran out, they had to let people go. Public sector numbers are only down, because States and municipalities are broke and are required to balance their budgets.
So, they give folks the boot. They get rid of essential people, and leave the bureaucrats. They close down parks. And they raise taxes.
30+ years of basing the economy on easy credit and unsustainable debt are about to bear a bitter fruit. The end of the road down to which the can is nearing the abyss.
Agreed. I do not know why “competition form overseas” is thought to be devoid of a regulatory factor component.