Economic Incoherence — 5 June 2012

What a ghastly number last week!

I’m not referring to the employment figure, although that was bad enough.  A mere 69,000 new jobs, less than half of what economists expected, and the third consecutive month of declining payrolls.  To add insult to injury, the previous months’ reports were revised downward.

But the ghastly number was the one President Obama used in his defense on the jobs front.  He had this to say after the labor market report: “Over the last twenty-seven months, we have created 4.3 million jobs…we have more work to do.” Four-point three million jobs sounds like rather a lot.  But the 27 months seemed like a fishy reference point – why not just look at two years?  I decided to check it out.

Sure enough, the months of March, April, and May 2010 were the first positive months after a dismal series of job losses.  In fact, months 1, 2, and 3 of that 27-month series saw a total of 944,000 jobs created – nearly a quarter of all the jobs he boasts of.  Take out that stub period and the US has added only 3.5 million jobs in two years – about 1.75 million per year.

But that’s not the worst of it.   We need about 2,500,000 new jobs every year just to keep up with the growth in the working age population.  We haven’t come close to that in any year of this administration.  What that means is that we are steadily falling behind in job creation.  The only reason the unemployment rate hasn’t kept climbing is that people get discouraged and quit looking; according to the DC statistics mill, that means they are no longer unemployed.  Tell that to their families.

So until we regularly start logging monthly employment gains of 200,000 or more, our economy is losing ground.  When the President and his surrogates point to four million or so jobs as a mark of progress, he’s counting on most people not doing the math and realizing what a terrible performance that is.

That’s not the only funny number the White House has employed to put a cheerful face on a dismal economy, or even the most egregious.  The current front-runner for that title is the claim that this administration has kept spending to the lowest rate of increase of any recent president.

Come again?  I don’t envy press spokesman Jay Carney his job very often, because he has to defend some inane propositions with a straight face.  This one, however, takes the cake.  The fantastic logic behind the claim comes from a very sympathetic columnist who figured this way: all of the spending that took place in Fiscal 2009 was not Obama’s doing, since the last Bush budget covered that period.

Of course, he conveniently skips over the part in which Congress didn’t pass 75% of its required appropriations bills until after the inauguration, figuring they’d have more fun with Obama in the White House.  Sure enough, the spending that came through in February 2009 was a prodigious leap forward for the government, one that few people noticed because all eyes were in the Big Stimulus, which also was passed in Fiscal 2009.  So neither of those exercises in fiscal hemorrhage occurred on Obama’s watch.  This takes the “it’s Bush’s fault” excuse to heretofore unimagined frontiers of cynicism.

Moreover, the big spending splurge was supposed to be emergency spending, which presupposes in any rational world that it is also temporary.  But that’s not the way this White House works.  Once passed by Congress, the whole stimulus became brick and mortar to the absolutely necessary government “investment” that must be maintained to keep the economy from descending into recession and worse.  In other words, it becomes the new baseline from which new spending grows.

Once the Republicans took over the House, spending beyond those stratospheric levels has indeed leveled off.  But to call that anything like restraint is like a 350-pound man claiming his diet is working, because he has only gained a further 15 pounds.

This notion was so comical that even the usually pliant White House press corps soon debunked it; nevertheless, the loyal and equally delusional columnist Paul Krugman was rehearsing this line just this past weekend.   Still, I suppose we should be glad that fiscal sobriety has become so widely accepted that even the Democrats pretend to practice it.

President Obama has plenty of reasons why the economy’s performance continues on such a dismal path.  The Bush recession was much worse than we thought; the Japanese tsunami wreaked havoc; the euro crisis is causing investor jitters, etc, etc.  Reading through the succession of alibis, one might think this is the unluckiest President in history – all those great policies and they don’t do the trick because so many exogenous factors keep derailing things.

The fact is, there are two related reasons why the economy is stubbornly resisting its natural tendency to grow.  The first is the avalanche of regulation and new taxation that Obamanomics promises; the second is the uncertainty about precisely what those rules and taxes are going to be.

The eminent, and eminently reasonable, economist John Taylor of Stanford University put it succinctly in an op-ed last week.  The climate most conducive to thriving business is one in which the rules are stable and expectations are for more of the same.  That enables managers to make plans, take calculated risks, expand their businesses, and hire people.

What we have instead is a welter of ad hoc, short-term “fixes” and “temporary, targeted” programs that conform to no plan or fundamental governing philosophy.  Obamacare and Dodd-Frank have yet to be codified; hundreds of rules are in the making, but few of them are final – but already certain well-placed firms or industries are arranging exemptions and waivers.  And the Supreme Court may throw out the health care law this month, leaving us with a shambles of a health care sector.  The EPA goes about forcing a carbon-free America by fiat.  The tax code, already bewildering and inimical to growth, lurches from one deadline to another  with no expectation of resolution or predictability.  In monetary policy as well, the Fed continues its highly experimental series of liquidity measures, without the benefit of a predictable set of rules to guide decision makers.

What is known is that Obama’s preference is for a much more highly regulated economy and a much more distributive tax code.  The battle royal up to this point has been over how much of it he will achieve.  None of this has been good for business.

In short summary: the White House can make up stories, but there’s no hiding the fact that economic performance has been dismal.  This has led to suffering on the part of millions of Americans.  And the fault, dear Brutus, lies not in your stars, but in yourself.

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