This is rather long but well worth the economics lesson, although my regular readers are already familiar with the terms and principles described below. No pictures this time, just facts.
When It Comes to the Jobless Numbers, President Obama Isn’t Talking Straight
by: Peter Ferrara, Forbes Online (08-09-12)
“This morning we learned that our businesses created 172,000 new jobs in the month of July,” President Obama bragged regarding last Friday’s jobs report. “That means we’ve now created 4.5 million over the last 29 months and 1.1 million new jobs this year.”
You should have learned by now on your own that you can’t believe a word the man says. If it is not outright false, it is cast out of context to deliberately mislead. Obama’s statement is like a pediatrician who brags to you that under his care your 16 year old son has grown to 4 feet, 5 inches. At the same point during the Reagan recovery, the economy had created more than 9.5 million new jobs.
Moreover, in just one month during the Reagan economic recovery boom, September, 1983, the economy created 1.1 million new jobs. That’s a real recovery.
But Obama’s statement is even more misleading. Because during his entire Administration, the economy has created less than zero jobs. Investors Business Daily replied on August 4 to Obama’s statement, “But ‘we’ haven’t created any jobs. As a matter of fact, since Obama has entered office, some 1.1 million payroll jobs have disappeared.” Former Bush Chairman of the President’s Council of Economic Advisors Edward Lazear added in the Wall Street Journal on July 30, “there hasn’t been one day during the entire Obama Presidency when as many Americans were working as on the day President Bush left office.”
Moreover, “since Obama stepped into office, 7.5 million people have left the workforce,” IBD added. Almost all of those folks are still out there without a job.
Obama also neglected to add that the Labor Department’s household survey, which determines the unemployment rate, found that the number of jobs plummeted last month by 195,000. That is why the U3 unemployment rate rose again, to 8.3%. It was the establishment survey of businesses that claimed the economy created 163,000, not 172,000, net new jobs last month. But that number is heavily influenced by seasonal adjustments that can be outdated, and by estimates, not counts of jobs created by new businesses. It is inconsistent with the fact the Labor Dept. also reported on Friday that 150,000 left the workforce last month.
That makes a postwar record 42 months of unemployment over 8%, the longest period of unemployment that high since the Great Depression. While Obama promised us when he wanted to pass his nearly $1 trillion wasteful government spending stimulus that unemployment would never climb above 8% if we did, it has never fallen below 8% during his entire, mistaken Presidency.
Moreover, the U3 unemployment rate doesn’t count the millions who have fled the work force under the oppression of Obamanomics. If labor force participation had just remained the same as when Obama entered office, unemployment would be still stuck for months now at 11%, which would be a postwar record, the highest since the Great Depression.
U.S. News and World Report Chairman Mort Zuckerman elaborated in the Wall Street Journal on July 24, that if you add “the number of discouraged workers who have dropped out of the labor market since the recession began in early 2008 – approximately eight million – the [unemployment] rate would be an alarming 12%. Fifty percent of the jobs created since the recession hit have been part time, with no benefits and a wage that’s inadequate to enter the middle class.” Discouraged workers who have left the work force, and those working part time only because they can’t find a full time job, are counted in the Labor Dept’s U6 unemployment rate, which rose last month to a depression level 15%. If you count the long term discouraged workers that the government stopped counting in 1994, the Shadow Government Statistics website reports that unemployment would be at the deep depression level of 22.9%.
The recession was scored by the National Bureau of Economic Research as ending in June, 2009, more than three years ago, because that is when GDP stopped declining and started growing again. That still made it the longest recession since the Great Depression at 18 months. As Jeffrey Anderson observed in IBD on August 6, “it’s not convincing for Obama to suggest – as he routinely does – that he should be evaluated on the basis of whether the recovery has been better than the recession. Recoveries, by definition, are better than recessions.”
Anderson rightly recognized that the comparable standard of measurement for Obama’s performance in office is: “How does the Obama recovery compare to other recoveries from similar downturns across the decades?”
Anderson noted that over the past 65 years, since World War II, America has experienced 10 previous recessions and 10 previous recoveries. He reports that average real GDP growth in the first three years after those recessions was 4.6%. In sharp contrast,
“During the Obama recovery…, average real GDP growth has been just 2.2% — less than half the historical norm. Of the past 11 recoveries, the Obama recovery has been the worst. The 10 stronger recoveries involved Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, Reagan, George H.W. Bush, Clinton, and George W. Bush – in other words, every other postwar President.”
Clearly, President Obama has been doing something wrong.
President Obama says out on the campaign trail, “We knew when I started in this job that this was going to take some time. We haven’t had to come back from an economic crisis this deep or this painful since the 1930s.” But Obama and his apologists cannot say that the recovery is so bad because the recession was so bad, because “the historical record shows that the pattern is generally as follows: the worse the recession, the stronger the recovery,” as Anderson proves. If we examine the 5 longest and worst recessions over the past 65 years, each lasting at least 11 months, “During the four pre-Obama recoveries from such recessions, average real GDP growth in the first three years was a whopping 5.9% — dwarfing the 2.2% figure under Obama.”
Anderson calculates what this Obama subpar performance has cost the American people. The difference between 5.9% and 2.2% real growth, a 3.7% per year shortfall, “equals about $555 billion per year, or $1.6 trillion over three years. If you divide that equally among the roughly 300 million Americans, it works out to a shortfall of more than $5,000 per person – or more than $20,000 for a family of four.”
Moreover, as Anderson reports, if the Obama recovery had rebounded as fast as the recoveries from the others of the worst 5 recessions since World War II, America would be enjoying 10 million more jobs now, with 10 million more workers contributing to the economy and paying taxes, rather than drawing taxpayer funded benefits.
And it is not getting any better, as Anderson also explains: “Over the first two years of the Obama recovery, average real GDP growth was 2.2%. During the third year, it remained at 2.2%. So far in 2012, it has been 1.8% annualized. In the most recent quarter, it was 1.5% annualized.”
Art Laffer explained in the Wall Street Journal on Monday why Obama’s recovery has been so awful – he relied on old-fashioned Keynesian “stimulus,” rather than the pro-growth incentives of the more modern supply side economics. Laffer explains,
“[S]timulus spending doesn’t really make much sense. In essence, it’s when government takes additional resources beyond what it would otherwise take from one group of people (usually the people who produced the resources) and then gives those resources to another group of people (often to non-workers and non-producers). Often as not, the qualification for receiving stimulus funds is the absence of work or income – such as banks and companies that fail, solar energy companies that can’t make it on their own, unemployment benefits and the like. Quite simply, government taxing people more who work and then giving more money to people who don’t work is a surefire recipe for less work, less output and more unemployment.” (emphasis added).
Laffer then explained the fundamental fallacy of Keynesian economics:
“Without ever thinking where the money comes from, politicians and many economists believe additional government spending adds to aggregate demand. You’d think that single-entry accounting were the God’s truth and that, for the government at least, every check written has no offsetting debit. [But] for every additional government dollar spent there is an additional private dollar taken. All the stimulus to the spending recipients is matched on a dollar-for-dollar basis every minute of every day by a depressant placed on the people who pay for these transfers. Or as a student of the dismal science might say, the total income effects of additional government spending always sum to zero.” (zero sum game)
But Laffer added that Keynesian stimulus spending is actually a net drag on the economy because the incentive effects of that spending encourage the recipients of the taxpayer largesse to reduce work and other productive activities, while the incentive effects of the increased taxes on producers to finance those benefits encourage them as well to reduce work and other productive activities. Hence the woefully below average Obama recovery. Yet, Obama is campaigning for hundreds of billions in additional, Keynesian, stimulus spending, which will only drive the economy down further, and further increase unemployment.
Laffer might have added that the central concern of Keynesian economics that inadequate demand can cause economic downturns is also wholly fallacious. In a market economy, if demand for a product or service is inadequate, then its price will fall until demand equals supply. So in a market economy, demand can never be inadequate.
Laffer proved out his analysis in the Journal commentary with a table of data showing that in the 34 Organization for Economic Development countries, greater Keynesian stimulus spending was followed by lower growth rates. Laffer concluded that Keynesian “Stimulus advocates have a lot of explaining to do. Their massive spending programs have hurt the economy and left us with huge bills to pay.”
But under Obama, the worst is yet to come. Under current law enacted under Obama, on January 1 the top tax rates of virtually every major federal tax are scheduled to soar, except for the federal corporate income tax, which under Obama is already the highest in the industrialized world. With Obama’s regulatory costs building to a crescendo then, government spending, deficits and debt already accelerating, and the Fed flooding the market with cheapened currency, the result will be one big, bad, whopping recession next year. Unemployment would then soar back into double digits, the deficit would rocket to over $2 trillion for the first time in world history, real wages and family incomes would fall further, and poverty would explode. If Obama is reelected, the American people would have achieved these results the old-fashioned way: they will have earned them.
Too many Americans are not getting what is happening with the economy and the election because they are relying too much on the so-called mainstream media. They don’t understand that ABC, CBS, NBC, the New York Times, the Washington Post, the Boston Globe, the Los Angeles Times, etc., are not reporting on the election. They are participating in it.