Belmont Club

The Collar of Money

Q: When is bad news good news?

A: When it kicks the can down the road.

The New York Times gives an example of how this works. “WASHINGTON — The surprisingly weak December jobs report might have strengthened Democrats’ hand in the current fight over emergency jobless benefits for the long-term unemployed even as it weakened the party in the larger midterm election battle.”

On Friday, the Labor Department said that the unemployment rate dropped to a five-year low of 6.7 percent. But the economy added only 74,000 jobs, and for every American who found work, five disappeared from the labor force. … Democrats have tried to harness middle-class families’ frustrations with the pace of economic growth by accusing the slow recovery in part on Republican recalcitrance….

Democrats have promised to continue to push for the extension, saying that millions of jobless workers still need the government lifeline. “The safety net has been just ripped away,” Mr. Reid said at a news conference this week. “The economy’s improving, but not for everybody.”

Rather than the jobs report being bad news, it’s good news. Now if only the can can be kicked past the larger midterm election battle all would be swell. But the real danger is one that the New York Times is beginning to fear. What happens if the government runs out of road? What if … for mercy’s sake … you can’t kick the can down the road indefinitely?

The AP says economists have pronounced themselves baffled by the declining rate of labor participation. Despite record stimuli by the administration, three million adult Americans have stopped looking for work.  What in the name of John Maynard Keynes is happening?  Relax. The economists tell us the noise we heard in the dark is just the random noise and not the face of disaster we imagined leering in at the window. Nothing to be worried about.

So what happened in December? Economists struggled for explanations: Unusually cold weather. A statistical quirk. A temporary halt in steady job growth. “The disappointing jobs report flies in the face of most recent economic data, which are pointing to a pretty strong fourth quarter,” said Sal Guatieri, an economist at BMO Capital Markets.

Whatever happens the libs have got the Money Press and the conservatives have not. So there’s nothing to worry about.

But do they have the Money Press still? What is perhaps of greater interest was reluctance by Federal Reserve officials to immediately reach for the bond market to fix this latest setback. “Another cut to bond purchases appears in the offing this month despite data that showed U.S. jobs growth slowed sharply in December, two top Federal Reserve officials said on Friday.”

“I would be disinclined to react to one month’s number,” St. Louis Fed President James Bullard told reporters after speaking at an Indiana bankers event. “For now we’re on a program where we’re likely to continue to taper (asset purchases) at subsequent meetings.” …

Jeffrey Lacker, the hawkish head of the Richmond Fed, said it would take a “couple of quarters” of bad news to change the U.S. economy’s improving trend.

“It takes a lot more than one labor market report to be convincing that the trend has shifted and in my experience one employment report rarely has an effect by itself on monetary policy,” said Lacker, who has been an opponent of bond buying from its start.

Maybe the Money Press Sentry Guns are running out of bullets. Jeffrey Dorfman, an economist at the University of Georgia has an interesting idea that explains why. He says that deficit spending doesn’t really boost the economy. It simply distorts it. He writes:

Deficit spending financed by borrowing does not create stimulus because the money that the government borrowed would have been borrowed by someone else and then spent by them. Money is just being shifted from the private sector to the public sector. Moving money from your left pocket to your right does not make you richer.

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In fact, government spending will generally add less value to the economy than if the money had been left in the private sector. If people get to spend their own money, they will do so in a way that maximizes the benefits they get from that spending. When government spends money at best they can manage to perfectly anticipate what we want, thereby matching the benefit we would have gotten from our own spending, or they can do worse.

In other words massive government spending programs fueled by premium increases, mandates, taxes and fees don’t really increase jobs. They just make it impossible for the taxed businesses and entrepreneurs to creat them. Giant spending programs like those embarked upon by the Obama administration create massive distortions in the economy in pursuit of political goals and just cripple it.

One example of how government spending can actually destroy industries became evident when health insurance companies admitted they are going to lose money by participating in Obamacare. The health insurance companies were initially drawn to the Obamacare because it seemed to guarantee new business.

In fact, hidden within the December jobs report is a significant details. Many of the job losses were in the healthcare industry. The Washington Post notes: “as it turns out, construction wasn’t the biggest contributor to the disappointing results. That would be the education and health-care sector”.

CNN Money has more details: “the hardest hit areas were nursing homes, which jettisoned 3,900 jobs, and home health care, which lost 3,700 positions. Hospitals got rid of 2,400 jobs, while physicians’ offices reduced staff by 1,200. … Several notable hospitals, including the Cleveland Clinic, reported layoffs last year as the federal government cut reimbursement rates and patient care shifts more to outpatient and urgent care clinics. In fact, outpatient care centers were the only part of the health care sector to boost jobs last month, adding 3,600 positions.”

The health insurance company Humana has revealed what the administration has so far resisting revealing. It’s the mostly old and infirm who have been joining the president’s flagship program. The company “now expects the risk mix of members enrolling through the health insurance exchanges to be more adverse than previously expected.”

Translation: it stands to lose its shirt and may seek a government bailout. Obama isn’t “helping” the health care industry. From all indicators he’s destroying it.  Marco Rubio just released this statement.

This week, insurance companies began making material filings to the Securities and Exchange Commission (SEC) regarding projections for their ObamaCare risk pools.

Already, one company has disclosed that “as a result of the December 2013 federal and state regulatory changes allowing certain individuals to remain in their previously existing off-exchange health plans, the Company now expects the risk mix of members enrolling through the health insurance exchanges to be more adverse than previously expected.”

“American taxpayers should not be on the hook for bailing out health insurers, especially because ObamaCare is not working the way it was sold,” said Rubio. “Congress should take an ObamaCare bailout off the table by passing legislation I’ve introduced to repeal the so-called risk corridor provision under the law.

“If ObamaCare can only survive through a taxpayer bailout of insurers, it’s yet another clear sign that it can’t survive and isn’t worth saving,” he added.

This is where Rubio is mistaken. The collapsing “risk corridors” only means they have to be propped up in same way that unemployment insurance has to be extended. Once “free money” — the deficit spending Dorfman spoke is introduced like a drug into the voters veins it will prove nearly impossible to withdraw.

In the world of demagogues you create failure then you reinforce it because you benefit from failure by demanding more power. The ruin of insurance companies will be used to the same effect that three million labor force dropouts have had. It will “strengthen the Democrats’ hand” in their “fight” for more spending.


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