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Offensive Expectations

Since when is 6.5 percent unemployment two years from now a tolerable target?

by
Tom Blumer

Bio

July 20, 2013 - 12:28 am

obama_unemployment_binoculars_big_7-17-13-1

Five years into the POR (Pelosi-Obama-Reid) economy, our government’s lowered expectations, eagerly embraced and endorsed by its media apparatchiks, are arguably more offensive, intolerable, and damaging than the failed government policies which have kept it in effect.

Those policies, best understood as the final proof of Keynesianism’s collapse, have begotten awful results. Supposedly designed to generate robust economic growth coming out of the recession, they have instead led to the weakest post-downturn growth since World War II, with trillions of dollars in collateral damage.

Three decades ago, during the first four years after the economy emerged from an awful recession while facing a far worse economic landscape — 13 percent inflation, 20 percent-plus prime interest rates, and almost 11 percent unemployment — the economy grew by over 21 percent in real terms. Assuming it ekes out the 1.7 percent annualized growth analysts predict during this year’s second quarter, the POR economy’s four-year post-recession growth will only be 8.5 percent. If the economy would have replicated its Reagan-era performance during the past four years, growth in Gross Domestic Product (GDP) would have been 2-1/2 times greater. That breathtaking difference works out to over $6,000 per person in today’s dollars, or over $24,000 for a family of four:

ReaganVsObamaPerCapitaThru2Q13

This leads to a point which can’t be repeated enough: The recession as defined by Obama cheerleader Warren Buffett in 2010 still hasn’t ended. Buffett’s benchmark, which explains why the average American correctly feels that the recession is still here: “I think we’re in a recession until real per capita GDP gets back up to where it was before.”

If we’re lucky, real per capita GDP might get back to where it was in calendar 2007 this year. Under Reagan, per capita GDP fully recovered within one year of the recession’s end, and was 13 percent higher than its pre-recession peak by Year 4.

As demonstrated last week, the recession’s onset can be traced to early June 2008, the point at which it became clear that Barack Obama, armed with an “energy-starving, heavy-taxing, wealth-redistributing, business-hostile agenda,” would become the Democratic Party’s presidential nominee and that campaign’s favorite to win in November. Enough businesspeople, entrepreneurs, and investors to make a difference cancelled any plans they might have had for expansion and additional hiring, and in many cases scaled back their operations in an attempt to survive the coming storm.

Obama himself seriously worsened the recession’s severity during the 2008-2009 presidential transition by expressing solidarity — “they’re absolutely right” — with union workers who were philosophical predecessors of the Occupy movement after they staged an illegal sit-in at a bankrupt window factory in his Chicago hometown. As a result, two banks which shared no blame for the employees’ plight were intimidated into making $1.35 million in payments to make what should never have been their problem go away. An Investor’s Business Daily editorial correctly stated that Obama endorsed “criminal activity,” and summarized the impact of that move in nine blunt words: “To advocate offenses against society is to legitimize them.” Many more members of the business community who hadn’t figured out or focused on what this man was and would be all about now did so, and reacted accordingly. As night follows day, the U.S. economy had its worst single-month job loss in history.

Once in office, Obama, with the help of House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, oversaw the passage of an $800 billion-plus stimulus program which spectacularly failed by any reasonable definition.

Four years and $5 trillion in accumulated budget deficits, along with another $3.4 trillion in “money from nothing” purchases of government securities by the Federal Reserve, both of which are supposed to be stimulative, have failed to stimulate the kind of growth needed to take the unemployment rate back to regular and fully loaded levels of 5.1 percent and 9 percent or lower, respectively, both of which were present for 36 straight months during the George W. Bush administration.

Obama’s continued encouragement of lawbreakers who support his agenda since he took office has been an important negative influence. Two of many examples include his silence while AIG executives were harassed in 2009, and his 2011 endorsement of the Occupy movement. Even more crucial, Obama and his own administration have openly flouted the law when doing so advances their agenda on more occasions than one can even hope to count. The business community especially noticed how they ran roughshod over the common-law property rights of disfavored General Motors and Chrysler bondholders during their spring 2009 bankruptcies, and chose to make hourly UAW members whole while shafting Delphi’s salaried retirees. Paraphrasing IBD above, “Openly flouting the law delegitimizes it.” The best defense for most businesses, especially smaller ones, has been to lay low, move very selectively, and hope not to get noticed. Such completely rational postures have led to the slow-motion economy we are now experiencing, and definitely not enjoying. In such an atmosphere, even interest-free funding won’t motivate, while the Reagan era’s off-the-charts growth was achieved despite persistent double-digit interest rates.

Obama and Fed Chairman Ben Bernanke are clearly okay with all of this. Bernanke has publicly stated that he is targeting a reduction of the current 7.6 percent unemployment rate to 7.0 percent by June 2014 and 6.5 percent by June 2015, as if that’s the best anyone can possibly do in the circumstances. The guess here is that we won’t even get that far by the identified deadlines. Every time Bernanke makes noise about “tapering” his stimulus, let alone stopping it or, heaven forbid, unwinding it, the stock market heads down, Ben gets cold feet, and nothing changes. Thus we have an artificially propped-up market which has increased the wealth of the top half of American households by over $4 trillion, while the heavily home value-dependent and debt-ridden bottom half has been devastated.

The Democratic Party and the establishment press would have correctly considered those unemployment rates unconscionable as policy goals until Obama came into office. Obama’s own economic team obviously also once thought so; they’re the ones who promised that the rate would be down to 5.1 percent by now if Congress would only pass his stimulus plan.

Obama, Bernanke, and their defenders would rather stick with the current malaise and its massive waste of human potential than change course and do what has historically quickly changed things for the better: lower and simplified taxes accompanied by regulatory restraint and predictability. The longer they remain stubborn, the better the chances are that we will become a two-decade zombie economy like Japan. It will not be pretty — at a macro or micro level.

Along with having a decades-long career in accounting, finance, training and development, Tom Blumer has written for several national online publications primarily on business, economics, politics and media bias. He has had his own blog, BizzyBlog.com, since 2005, and has been a PJM contributor since 2008.

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All Comments   (6)
All Comments   (6)
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So much misery could have been avoided if people had listened to what obama was saying when he first ran for the presidency. He was not qualified for the job and he certainly hasn't grown into it.
1 year ago
1 year ago Link To Comment
The post-adolescent emotional attachment that this administration's economic policy wielders have is staggering. You can't make a 7 a 5 simply by wishing it to be so. By the same token, Unicorns and Utopia are fictional. Poverty and taxes are real. But trying to get unicorns and Utopia THROUGH taxes is downright delusional.

No matter what anyone says, increasing the money supply devalues the money.

Destroying jobs lessens the ability to GET money.

Giving money away to people who don't work increases contempt from the people who work.

This regime is intentionally fighting a multi-front war on the destruction of the way the US does business. It is purely intentional to bring about the cry from the people to have the government fix it.

Add to that, when you combine the government's intentional ignoring of the rules of money, with the inept methodology of how they want to "fix" everything, you have a cavalcade of stupidity; All the "best and brightest" arguing how to make it work while the single, solitary individual ignores them and side-steps their clever, academically-approved repairs and goes about his business.

This is what they did in the former Soviet Union. This is what's coming here. It's intentional.
1 year ago
1 year ago Link To Comment
My local newspaper recently celebrated the marvelous news that my county's (Westchester, NY, one of the 10 richest in the nation) unemployment rate has plummeted to 7.5%, actually LOWER THAN THE NATIONAL AVERAGE! I despair of my sanity.
1 year ago
1 year ago Link To Comment
It is offensive, but it is both parties' failures to even talk about it openly or honestly or rationally. It's the end result of fifty years of outsourcing. Perhaps a bust at some point was unavoidable and it was praiseworthy to put it off as long as we did, by hook and by crook (literally). Then again, perhaps not, on both points.

Paul "Blithering" Krugman makes a distinction between a recession and a crash/market failure, 2007/2008 being the later. I grant him the point, insofar as it matters. He claims previous crashs have much longer recovery charts than previous recessions. Maybe so. It gets dicey when you try to categorize 1929/1933 and what followed, compared to 2007/2008 etc.

There may be some Seldonian time constants in all these things, but healing does not take place by magic, and there is mighty strong disagreement on what it does take place by. On this, I am at least 540 degrees away from Krugman, or he is at least 540 degrees away from reality.

Look, it's quite simple, all the jobs are now in China, and there is no US recovery until about 10,000,000 jobs come back.

Have a nice economy.
1 year ago
1 year ago Link To Comment
Remember that the Dems controlled both chambers of Congress in '07 & '08, that's the place where appropriations are written, somehow it was all one man's fault, Bush. The deficits in large part were the funds distributed to fedral agencies and state and local governments. You know what they do with them.
Unemployment down to 6'5% in two years? Sure, I'll bet my life on that.
1 year ago
1 year ago Link To Comment
Where are the GOP ads about "Spread the Jobs". The Democrats and Obama are all about "Spread the Wealth" so voters need to be told that spreading the wealth is just making you part timers. Enjoy!
1 year ago
1 year ago Link To Comment
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