Feeds:
Posts
Comments

Posts Tagged ‘Unemployment’

The new unemployment numbers have been released and the White House must be somewhat happy. The joblessness rate is down to 8.2 percent, which means the number that gets the most publicity continues to move in the right direction.

I’ve been predicting that Obama will win reelection if the unemployment rate falls to 8.0 percent or below, so my prognostication ability will be put to the test if this trend continues.

But let’s set aside the politics and take a dispassionate look at the U.S. job market. How are we doing?

Well, total employment is estimated to be a bit above 142 million.

The good news is that we have about 4.1 million more jobs than we had in December of 2009.

The bad news is that we still have fewer jobs than when Obama took office, and about 4.5 million fewer jobs than we had in November 2007.

Last September, I put together four charts to assess Obama’s performance on jobs.

Let’s update those charts to get a more complete look at the labor market.

First, let’s begin by comparing where we are now to where the White House said we would be if Congress enacted the President’s so-called stimulus. As you can see, the actual joblessness rate is about 2-percentage points higher. That’s not a good performance.

If Republicans want to highlight a number that favors them, they could point out that the unemployment rate began to fall once they took control of the House. It was near its peak, at 9.8 percent, in November of 2010, and now it’s dropped by more than 1.5 percentage points.

Of course, they really shouldn’t brag since a lot of the bad news is a lingering consequence of the statist policies of the Bush Administration.

Nonetheless, I think the economy has reacted positively to the 2010 elections since gridlock makes it harder for politicians of either party to impose new burdens.

Let’s look at another chart that was in my September post. As you can see, the unemployment rate for African Americans is especially dismal.

I’ve already made the point that Obama’s policies are bad news for Black Americans, particularly policies such as higher minimum wage requirements that cut off the bottom rungs of the economic ladder.

Another bit of bad news can be found in the data on long-term unemployment. This chart shows the share of the unemployed that have been without a job for at least six months. Very damning.

Part of the problem, as even Democrat economists have admitted, is that Obama’s policy of extended unemployment insurance benefits has been subsidizing joblessness.

Last but not least, we have the chart that should be the most troubling of all. It shows a sustained drop in the labor force.

Economic growth and output are the result of labor and capital being mixed together by entrepreneurs and investors. If there is a permanent reduction in the availability of one of the ingredients, that obviously doesn’t bode well for American prosperity.

And this is why Obama deserves a poor grade. Not because his policies caused the weak job market. Those problems existed before he took office. Instead, he gets a bad grade because he continued the statist policies of his predecessor.

Read Full Post »

I’ve been a big critic of Obama’s policies on taxes, spending, regulation, and intervention, so you won’t be surprised that I argued on CNBC that his policies have made the economy worse.

Here are two graphs, which I posted earlier this month, that make my point. The red lines show the economy is finally – and slowly – moving in the right direction, but the blue lines show how the economy boomed under Reaganomics.

The gap between the two lines in the charts is a measure of how Obama’s policies have undermined the economy, as I mentioned on the program. However, I also said that this may not matter much this November if Republicans are incapable of making coherent economic arguments.

One last thing to emphasize is that Jared resorted to dishonest Washington math when discussing Obama’s make-believe budget cuts. When you use honest numbers, as i did when analyzing the President’s new budget, you find that the burden of government spending is going to climb by $2 trillion between 2012 and 2022.

Read Full Post »

I’ve written periodically about the perverse incentives of the unemployment insurance system. Simply stated, there will be fewer jobs if the government subsidizes joblessness, and I even showed that this is a consensus position by citing the academic writings of left-leaning economists such as Larry Summers and Paul Krugman.

The San Francisco Federal Reserve also has produced research measuring the negative impact of unemployment insurance on the job market.

Now we have some additional academic research on the topic, and the results once again show that the unemployment insurance program causes a significant increase in unemployment.

The Emergency Unemployment Compensation program created in the summer of 2008 provided for unprecedented extensions in the duration of unemployment insurance (UI) benefits. Combined with persistent high unemployment and historically long durations of unemployment during the 2008 and 2009 recession, this extension of UI has prompted renewed interest in the impact of UI benefits on job search, the duration of unemployment, and the unemployment rate. …This paper uses multiple regression analysis to estimate the impact of extended UI benefits on the unemployment rate after controlling for the severity of the recent recession. The extension of UI is found to have a positive and significant impact on the national unemployment rate… The UI benefit extensions that have occurred between the summer of 2008 and the end of 2010 are estimated to have had a cumulative effect of raising the unemployment rate by .77 to 1.54 percentage points.

If you’re trying to educate a statist friend or colleague about the relationship between unemployment insurance and joblessness, this research should help. But you may also want to share this real-world story. And here’s another powerful anecdote.

Last but not least, this cartoon does a very effective job of showing the consequences of paying people not to work.

Read Full Post »

The new unemployment numbers show a joblessness rate of 8.3 percent.

From a political perspective, this is good news for the White House. Even though the Obama Administration projected that the unemployment rate today would be about 2-percentage points lower if the so-called stimulus was adopted, most people aren’t looking at the numbers analytically.

Instead, what matters most is the trend. And since there’s been steady movement in the right direction, the President can say it’s somehow because of his policies.

Whether that’s true or not doesn’t matter. Politics is about perception. And since I began predicting, back in 2010, that Obama would win reelection if the joblessness rate was 8 percent or below, the folks at the White House should be smiling.

But there’s another group of people who should be happy. Republicans can argue that the improvement began almost precisely at the moment they took control of the House of Representatives.

Here are the monthly numbers, beginning in November 2010.

But I’m not here to spin a happy story for either Obama or House Republicans. The real story is that gridlock works, just as our Founding Fathers envisioned.

Once Republicans took control of the House, it meant that there was almost no chance that Obama would be able to impose more of his agenda.

This means no possibility of cap-and-trade industrial policy. It means no big new spending initiatives. It means no threat of a value-added tax.

And this means that the private sector finally has some degree of comfort that things won’t get worse in the future. This is not a trivial matter. Indeed, the Great Depression lasted so long and was so deep in part because Hoover and Roosevelt kept expanding the burden of taxes, spending, regulation, and intervention. The productive sector of the economy kept getting knocked to the canvas, so there’s was never an opportunity to adjust to the new burdens.

This isn’t to say gridlock, by itself, solves problems. Necessary reforms such as the Ryan budget can’t be implemented if we have gridlock forever, and that means America eventually would become another Greece.

But if the choice is between moving in the wrong direction and treading water, then the latter is better. It means the economy can adjust and slowly recover.

Yes, the potential long-run growth rate won’t be as high because of the bad policies implemented in Obama’s first two years, but gridlock means that nothing really bad will happen in the near future. As such, we can at least expect continued improvement in the jobs market and decent – albeit not impressive – growth.

Ironically, that’s good news for Obama. If he wins reelection, he should send a bouquet of roses to John Boehner.

Read Full Post »

On this day last year, I posted two charts that I developed using the Minneapolis Federal Reserve Bank’s interactive website.

Those two charts showed that the current recovery was very weak compared to the boom of the early 1980s.

But perhaps that was an unfair comparison. Maybe the Reagan recovery started strong and then hit a wall. Or maybe the Obama recovery was the economic equivalent of a late bloomer.

So let’s look at the same charts, but add an extra year of data. Does it make a difference?

Meh…not so much.

Let’s start with the GDP data. The comparison is striking. Under Reagan’s policies, the economy skyrocketed.  Heck, the chart prepared by the Minneapolis Fed doesn’t even go high enough to show how well the economy performed during the 1980s.

Under Obama’s policies, by contrast, we’ve just barely gotten back to where we were when the recession began. Unlike past recessions, we haven’t enjoyed a strong bounce. And this means we haven’t recovered the output that was lost during the downturn.

This is a damning indictment of Obamanomics

Indeed, I made this point several months ago when analyzing some work by Nobel laureate Robert Lucas. And it’s been highlighted more recently by James Pethokoukis of the American Enterprise Institute and the news pages of the Wall Street Journal.

Unfortunately, the jobs chart is probably even more discouraging. As you can see, employment is still far below where it started.

This is in stark contrast to the jobs boom during the Reagan years.

So what does this mean? How do we measure the human cost of the foregone growth and jobs that haven’t been created?

Writing in today’s Wall Street Journal, former Senator Phil Gramm and budgetary expert Mike Solon compare the current recovery to the post-war average as well as to what happened under Reagan.

If in this “recovery” our economy had grown and generated jobs at the average rate achieved following the 10 previous postwar recessions, GDP per person would be $4,528 higher and 13.7 million more Americans would be working today. …President Ronald Reagan’s policies ignited a recovery so powerful that if it were being repeated today, real per capita GDP would be $5,694 higher than it is now—an extra $22,776 for a family of four. Some 16.9 million more Americans would have jobs.

By the way, the Gramm-Solon column also addresses the argument that this recovery is anemic because the downturn was caused by a financial crisis. That’s certainly a reasonable argument, but they point out that Reagan had to deal with the damage caused by high inflation, which certainly wreaked havoc with parts of the financial system. They also compare today’s weak recovery to the boom that followed the financial crisis of 1907.

But I want to make a different point. As I’ve written before, Obama is not responsible for the current downturn. Yes, he was a Senator and he was part of the bipartisan consensus for easy money, Fannie/Freddie subsidies, bailout-fueled moral hazard, and a playing field tilted in favor of debt, but his share of the blame wouldn’t even merit an asterisk.

My problem with Obama is that he hasn’t fixed any of the problems. Instead, he has kept in place all of the bad policies – and in some cases made them worse. Indeed, I challenge anyone to identify a meaningful difference between the economic policy of Obama and the economic policy of Bush.

  • Bush increased government spending. Obama has been increasing government spending.
  • Bush adopted Keynesian “stimulus” policies. Obama adopted Keynesian “stimulus” policies.
  • Bush bailed out politically connected companies. Obama has been bailing out politically connected companies.
  • Bush supported the Fed’s easy-money policy. Obama has been supporting the Fed’s easy-money policy.
  • Bush created a new healthcare entitlement. Obama created a new healthcare entitlement.
  • Bush imposed costly new regulations on the financial sector. Obama imposed costly new regulations on the financial sector.

I could continue, but you probably get the  point. On economic issues, the only real difference is that Bush cut taxes and Obama is in favor of higher taxes. Though even that difference is somewhat overblown since Obama’s tax policies – up to this point – haven’t had a big impact on the overall tax burden (though that could change if his plans for higher tax rates ever go into effect).

This is why I always tell people not to pay attention to party labels. Bigger government doesn’t work, regardless of whether a politician is a Republican or Democrat. The problem isn’t Obamanomics, it’s Bushobamanomics. But since that’s a bit awkward, let’s just call it statism.

Read Full Post »

Earlier this week, I explained why Mitt Romney is a Republican version of Barack Obama. His transgressions include being open to a value-added tax, a less-than-stellar record on healthcare, weakness on Social Security reform, an anemic list of proposed budget savings, and support for reprehensible ethanol subsidies.

Now we can add something else to the list. He wants to cut off the bottom rungs of the economic ladder and hurt low-skilled workers.

Here are a couple of passages from a report in the Oregonian.

Mitt Romney…continues to be a supporter of indexing the minimum wage for inflation. Oregon and Washington were among the first states to index their own minimum wages to inflation – nine states now do so – and it’s a favorite of liberals… Romney campaigned in favor of indexing the minimum wage when he ran for governor in 2002.  However, ABC News noted in 2007 that he wasn’t sure he supported indexing the federalminimum wage (which is lower than the minimum wage in several states).  In this new video, you could quibble that he doesn’t explicitly say he’s talking about the federal minimum — but that sure seems to be the tenor of his comments.

In other words, Romney is willing to condemn lower-skilled workers to unemployment, in hopes that he will gain some sort of short-term political advantage. In this regard, he will be just like Bush.

For a good explanation of why the government should not try to dictate wages, here’s a video narrated by one of my former interns.

It’s also worth noting that the minimum wage imposes disproportionate damage on the African-American community, as Walter Williams has explained.

Read Full Post »

The White House doubtlessly is happy that the unemployment rate has dropped to 8.5 percent, in part because the President is much more likely to get reelected if voters think the economy is heading in the right direction.

My political predictions have a mixed track record, so take this for what it’s worth, but I’ve been telling audiences for quite some time that Obama will definitely win reelection if the joblessness rate drops to 8 percent or below by next November.

But the latest drop in the unemployment is not unambiguous good new for the Obama Administration.

Before explaining why, let’s take a brief detour and look at how the unemployment rate is calculated. The key thing to understand is that there are two moving parts. First, the government estimates the number of unemployed people. That’s the obvious part of the calculation.

But in order to calculate the unemployment rate, the government has to estimate the size of the labor force. But this is not a simple number to calculate because many people who could work – such as women with young children, students, people approaching retirement age – sometimes decide that their time could be better spent doing other things.

So the government has to look at all the people who don’t have jobs and guess how many of them would like to work.

With this in mind, let’s look at the unemployment rate. The simple way to think about unemployment numbers is that the joblessness rate can rise or fall for good reasons and bad reasons.

If the unemployment rate drops because hundreds of thousands of jobs are being created each month, that’s obviously good news.

But if the jobless rate falls because the government estimates that lots of people have become discouraged and dropped out of the labor force, then that’s not good news.

In other words, sometimes the unemployment rate, by itself, doesn’t tell the full story.

That’s why one of the best statistics to look at is the employment-population ratio, which measures the number of people who have jobs and compares it to the number of people who could have jobs.

And by this measure, the Obama White House can’t be very happy. As illustrated in the chart, the job numbers have barely begun to recover.

This is a woefully under-reported piece of data. A few news outlets do mention the phenomenon of “discouraged workers” dropping out of the labor market, but only policy geeks like me seem to pay attention.

But the employment-population ratio does have real-world implications. The economy’s overall level of output (i.e., national income, gross domestic product, etc) depends on how many people are working. And that is what determines whether living standards are rising, falling, or stagnating.

This is why the Obama Administration can’t rely of a falling unemployment rate. As I’ve explained elsewhere, the American economy appears to have suffered a permanent loss of output in recent years.

So what does this mean, for those of you who care about political implications of economic statistics? The honest answer is that I have no idea. But since living standards are still stagnant, a falling joblessness rate won’t necessarily translate into a victory for the incumbent party.

Read Full Post »

I’ve written before about the perverse impact of the unemployment insurance program, and I’ve even cited how left-wing economists such as Paul Krugman and Larry Summers admit that you get more joblessness when you pay people for not working.

I’ve even shared a very good cartoon making the same point. And who can forget Nancy Pelosi’s mindless comments about unemployment benefits being a great way to stimulate job creation.

But sometimes it helps to have real-world anecdotes, and this letter-to-the-editor from a newspaper in Ohio is very educational. Here are key excerpts.

Little did I know that attempting to hire the employees needed, which I had thought to be the easiest part, would turn out to be a nightmare if not impossible. …Before 2009 if our company advertised for an open position, on average we would get 20 to 30 applications, interview six to eight of the applicants, and hire one or two, based on the quality and potential of the candidates. This process has been deteriorating dramatically since 2009 and now at the end of 2011 it has completely hit bottom. Of all the applications that we have received this year, when asked why they were seeking a job with us, one out of three answered: my unemployment is running out and I have to go back to work. Earlier this year after I hired two new full-time employees, went through our company’s orientation process, fitted them with our work clothing and booked them to start within a week, they both quit. One called ahead of the start date to apologize but wanted to inform us he would not be coming in because the government had just extended unemployment benefits again. The second one just did not show on his first day and when I called him he said he couldn’t come in now because unemployment had been extended and he was making almost as much as we were planning to start him out with.  …Our government is considering extending unemployment benefits again soon. The final absurdity might be that extending unemployment is the only thing that both the Democratic and Republican majorities both agree on.

By the way, here’s a post with a similar real-world story from Detroit.

Read Full Post »

Even though leftist economists such as Paul Krugman and Larry Summers have admitted that unemployment insurance benefits are a recipe for more joblessness, the White House is arguing that Congress should enact legislation to further subsidize unemployment.

It’s understandable that the Obama Administration is concerned about the issue. These four charts show that the labor market is in terrible shape.

But how can we convince the President that more government is just making a bad situation even worse? What will it take to educate him about the need to reduce government-imposed barriers to job creation?

Perhaps this cartoon will do the trick

And if statists learn from this cartoon, then maybe we should show them another cartoon showing the link between unemployment insurance benefits and joblessness.

Read Full Post »

The President’s “green energy” loan program has turned into an embarrassment for the White House, in part because of the sordid corruption associated with the bankruptcy of Solyndra.

But the subsidy program also has attracted some negative attention for its failure to create jobs – even from media outlets that normally are sympathetic to big government.

Here’s a passage from a story in today’s Washington Post.

A $38.6 billion loan guarantee program that the Obama administration promised would create or save 65,000 jobs has created just a few thousand jobs two years after it began, government records show. The program — designed to jump-start the nation’s clean technology industry by giving energy companies access to low-cost, government-backed loans — has directly created 3,545 new, permanent jobs after giving out almost half the allocated amount, according to Energy Department tallies.

Wow, more than $19 billion lent out, and only 3,545 jobs created.  I’m not a math genius, but that seems to be more than $5 million per job.

But let’s suspend reality and accept the Administration’s nonsensical projections that the full $38.6 billion will lead to more than 60,000 jobs. That still works out to be in the neighborhood of $600,000 per job.

Even using that ultra-optimistic scenario, this certainly seems to be a case of government spending far too much money to achieve a particular goal.

But this analysis is grossly inadequate, and White House critics are understating the argument against the scandal-tainted green energy program.

You don’t measure the job impact of a government program simply by dividing the number of jobs into the amount of money that has been spent. That only gives you part of the answer.

You also have to estimate how many jobs would have been created if the $19 billion (or full $38.6 billion) had been left in the private sector rather than being diverted by the heavy hand of government.

In other words, to paraphrase Bastiat, we want to look not only as the “seen” of government spending, but we also want to look at the “unseen” of how the money otherwise would have been allocated. What modern economists sometimes refer to as the “opportunity cost.”

It is not easy, of course, to estimate the number of jobs that would have been created if the government wasn’t diverting money into a green energy program. Ask 10 economists and you’ll get 15 answers.

But we know these effects are real.

To understand what this means, let’s create a rough-and-ready rule of thumb.

According to Tables B-102 and B-103 of the Federal Reserve’s Flow of Funds report, the combined non-financial capital of non-farm businesses is about $20.7 trillion. And the Labor Department says we have close to 140 million people employed, which means the average amount of capital per job is about $155,000.

You can also take a different approach and look at the non-financial capital of households from Table B-100, which is a bit over $23 trillion. Using that number, the average amount of capital is about $165,000 per job.

In either case, it’s quite obvious that the private sector utilizes capital far more efficiently than government. Instead of using $5 million of capital to create a job, as has been the case so far with the Administration’s green energy program, the private sector requires about $160 thousand.

But let’s not forget that we want to give the White House the benefit of the doubt, so we will use the Administration’s future projection that each job will cost “only” $600,000. That’s still almost four times as much as it costs to create a job in the private sector.

Keeping in mind that good analysis requires us to measure the “seen” and “unseen,” let’s now look at net job creation, which is where the rubber meets the road. The federal government is going to divert $38.6 billion from private capital markets for its green energy program, and the Administration claims this will lead to 60,000-65,000 jobs.

However, based on the existing ratio of non-financial capital to employment, that same $38.6 billion, if left in the productive sector of the economy, would create about 240,000 jobs.

In other words, for every one job “created” by the government, almost four jobs will be foregone. The Obama White House isn’t defending a program that spends a lot of money to create very few jobs. The Administration is defending a program that spends a lot of money and – as a result – reduces total jobs by perhaps 180,000.

P.S. This analysis, by the way, is incomplete. You also should estimate how many jobs might be lost because of secondary economic effects such as the expectation of higher taxes caused by additional red ink. And what about the tertiary effects such as companies and investors responding to big government by inefficiently allocating  resources to lobby for DC handouts.

P.P.S. This analysis applies to all government spending, whether it is for short-run Keynesian stimulus or long-run entitlement programs. The relevant question, from an economic perspective, is whether the government can utilize resources more efficiently and productively than the private sector. Needless to say, there are not many types of government spending that meet this test. This is why the academic research, as explained in this video, shows that we would be much more prosperous if government was much smaller.

P.P.P.S There are any number of ways one can measure the amount of capital per job. Very broad measures, such as total net worth in the economy, would push the number higher, but presumably would overstate the amount of capital needed to create an average job in the private sector. Narrower measures, such as the value of business equipment and structures, would generate a much smaller number, but presumably understate the amount of capital needed to create an average job in the private sector. Or, instead of looking at the stock of capital and the total number of jobs, we could look at incremental flows of capital and incremental employment changes. I don’t pretend that my rule-of-thumb estimate is ideal. The goal is simply to create an example so we can understand why it is important to consider both the “seen” and the “unseen.” And using that approach helps explain why the economy gets weaker as the government gets bigger.

Read Full Post »

Herman Cain probably had the best reaction to the President’s speech: “We waited 30 months for this?”

My reaction yesterday was mixed. In some sense, I was almost embarrassed for the President. He demanded a speech to a joint session of Congress and then produced a list of recycled (regurgitated might be a better word) Keynesian gimmicks.

But I was also angry. Tens of millions of Americans are suffering, but Obama is unwilling to admit big government isn’t working. I don’t know whether it’s because of ideological blindness or short-term politics, but it’s a tragedy that ordinary people are hurting because of his mistakes.

The Wall Street Journal this morning offered a similar response, but said it in a nicer way.

This is not to say that Mr. Obama hasn’t made any intellectual progress across his 32 months in office. He now admits the damage that overregulation can do, though he can’t do much to stop it without repealing his own legislative achievements. He now acts as if he believes that taxes matter to investment and hiring, at least for the next year. And he now sees the wisdom of fiscal discipline, albeit starting only in 2013. Yet the underlying theory and practice of the familiar ideas that the President proposed last night are those of the government conjurer. More targeted, temporary tax cuts; more spending now with promises of restraint later; the fifth (or is it sixth?) plan to reduce housing foreclosures; and more public works spending, though this time we’re told the projects really will be shovel-ready.

And let’s also note that Obama had the gall to demand that Congress immediately enact his plan – even though he hasn’t actually produced anything on paper!

And then, for the cherry on the ice cream sundae, he says he wants the so-called supercommittee to impose a bunch of class-warfare taxes to finance his latest scheme.

What began as tragedy has now become farce.

If you didn’t see it when I posted it a month or so ago, here’s the video I did last year when Obama was proposing a second faux stimulus. Now that he’s on his fourth of fifth jobs-bill/stimulus/growth-package/whatever, it’s worth another look.

Though I must confess that I made a mistake when I put together this video. I mistakenly assumed the economy would have at least managed to get back to a semi-decent level of growth. More confirmation that economists are lousy forecasters.

Read Full Post »

I recently posted four charts eviscerating Obama’s record on jobs.

My Cato colleague, Caleb Brown, has a good complement to those charts. He’s put together a short video looking at how government spending and regulation undermine job creation.

Caleb says he will be doing more excellent videos like this, which is very encouraging since there is so much more ground to cover – particularly when trying to educate people in Washington.

One thing he should explain is that jobs don’t exist without profits. As I explained in a New York Post column last year, employers “only create jobs when they think that the total revenue generated by new workers will exceed the total cost of employing those workers.”

This seems like an elementary observation, but it’s one that most politicians don’t seem to understand. Or don’t care to understand.

That certainly seems to be the case at 1600 Pennsylvania Avenue. The president will speak tonight and supposedly will propose a $300 billion plan. He’ll claim, of course, that this new “stimulus” package will boost growth.

But a look at the various components that reportedly will be in his plan doesn’t create a sense of optimism. Especially since it appears that he’s mostly recycling proposals that already have failed at least once.

Maybe the President should copy the policies of a former President, who also had to deal with a deep downturn, but managed to produce dramatically better results.

Read Full Post »

President Obama will be unveiling another “jobs plan” tomorrow night, though Democrats are being careful not to call it stimulus after the failure of the $800 billion package from 2008.

But just as a rose by any other name would smell as sweet, bigger government is not good for the economy, regardless of how it is characterized.

Here are the most likely provisions for Obama’s new stimulus, as reported by the Associated Press, along with a grade reflecting whether the proposals will be effective.

o Payroll tax relief – C – This proposal won’t do any harm, but it probably won’t have much positive impact because people generally don’t make permanent decisions on creating jobs and expanding output on the basis of temporary tax cuts.

But, to be fair, if the tax cut keeps getting extended, people may begin to view it as a semi-permanent part of the tax code, which would make it a bit more potent.

o Extended unemployment benefits – F – I agree with Paul Krugman and Larry Summers, both of whom have written that you extend joblessness when you pay people to be unemployed for longer and longer periods of time.

And I recently produced a chart showing how long-term unemployment has jumped sharply since Obama entered the White House, a dismal result that almost surely is related to the numerous expansions of unemployment benefits.

o New-hire tax credit – D – This proposal actually would subsidize employment rather than joblessness, so it’s an improvement over extending unemployment benefits, but it’s unclear how the IRS can effectively enforce such a scheme.

This approach was tried already, as part of HIRE Act of 2010 (which was infamous for the FATCA provision), and it obviously didn’t generate great results. Simply stated, giving special tax breaks to companies with high employee turnover is not an effective approach.

o School construction subsidies – F – The federal government should have no role in education. Period.

That being said, the economic flaw of school construction spending-cum-stimulus is that government spending must be financed with either taxes or borrowing, both of which divert resources from the productive sector of the economy. Simply stated, Keynesian spending does not work.

o Temporary expensing of business investment – B – The current tax code penalize new business investment by forcing companies to “depreciate” those costs rather than “expense” them, thus forcing companies to artificially overstate profits. Temporary expensing mitigates this foolish bias.

But temporary tax cuts, as noted above, are unlikely to have a permanent impact on growth. Temporary expensing, however, will encourage companies to accelerate planned investment to take advantage of better tax treatment, so it can lead to more short-term economic activity (albeit perhaps by reducing economic activity in future years).

The only good news – at least relatively speaking – is that Obama supposedly will propose to misallocate $300 billion of resources, significantly less than what was squandered as part of he 2009 faux stimulus.

But the bad news is that the AP story also notes that “Obama has said he intends to propose long-term deficit reduction measures to cover the up-front costs of his jobs plan.” Translated into English, that means the gimmicks and new spending in the plan proposed tomorrow night will lead to proposed tax hikes at some point in the future.

More taxes and more spending. Hey, it worked for the Greeks, right?

Read Full Post »

President Obama may have a buddy-buddy relationship with big labor, but he’s no friend to ordinary workers. Here are four damning pieces of evidence.

1. The unemployment rate remains above 9 percent according to the Labor Department data released on Friday.

This is about 2-1/2 percentage points higher than Obama promised if would be at this stage if we adopted the failed stimulus.

This is a spectacular failure.

2. Black unemployment has jumped to 16.7 percent.

I’ve already commented on how Obama has produced bad results for the African-American community, and the joblessness numbers are rather conclusive.

What makes that figure especially remarkable is that the black unemployment rate during the Obama years is more than 50 percent higher than it was during the Bush years.

3. More than 40 percent of the unemployed have been out of work for more than six months.

These bad numbers almost certainly are caused, at least in part, by the unemployment insurance program – as even senior Democrat economists have acknowledged.

4. Millions of people have dropped out of the labor force, dropping the employment-population ratio to the lowest level in decades.

Here’s the chart I posted last month. It hasn’t changed, and it’s perhaps the clearest evidence that Obama’s policies are crippling America’s long-run economic outlook.

All four of these charts are bad news. But the economy periodically hits a speed bump. The real problem is not bad numbers, but the fact that bad numbers have persisted for several years.

And the really bad news is that there is little reason to expect a turnaround given the current Administration’s affinity for bigger and more burdensome government.

Read Full Post »

We all know about the wretched failure of Obama’s stimulus, and we can update the chart showing that the joblessness rate is two-and-one-half percentage points higher than the White House claimed it would be at this point if we flushed $800 billion down the Washington rat-hole.

But we also should pay attention to the second Obama jobs disaster. This chart shows the employment-population ratio from the Department of Labor, and it reveals that the number of people participating in the labor force has fallen off a cliff since 2008.

The decline began during the big-government Bush years, so Obama does not deserve all the blame. But we can say that his policies have hindered the economy’s natural tendency to bounce back from a downturn.

Read Full Post »

There are several possible responses to the news that President Obama once again wants to focus on job creation. What’s your favorite?

1. Hasn’t he punished us enough already?

2. Didn’t “recovery summer” solve that problem?

3. I thought we already “created or saved” millions of jobs?

4. See picture.

5. Didn’t Clint Eastwood say “A man’s gotta know his limitations.”?

6. Can I be a bureaucrat and get overpaid for doing nothing?

7. WTF, OMG, LMAO!

8. If we do another stimulus, can I take a turn flushing the money?

9. Is this why we keep pushing higher tax rates?

And just in case we don’t realize the President’s commitment to this task, here’s a short new video.

Read Full Post »

Actually, Obamanomics already has failed. It didn’t work for Hoover and Roosevelt. It didn’t work for Bush. It isn’t working in Europe. And now it’s failing for Obama.

It doesn’t matter what you call it or when the policies are imposed, expanding the size and scope of government is bad for prosperity. So the real question is when will the establishment press finally admit that Obamanomics has failed?

The unemployment numbers released today certainly will not be easy to spin. Here’s the chart I periodically update, showing the actual unemployment rate compared to what the White House claimed would happen if we flushed $800 billion down the Washington rathole.

Read Full Post »

It gets my blood boiling that the crowd in Washington is talking about raising our taxes when the budget is so riddled with excess spending. Here are two stories that illustrate the waste, fraud, and abuse that is pervasive in the federal budget.

Our first example is about unemployment benefits fraud. I’ve noted on several occasions (including this very amusing cartoon) that the main problem with unemployment benefits is that they lure people into long-term joblessness and dependency. That gets me angry in my role as an economist. As a taxpayer, though, I get upset that 10 percent of the funds (that’s just what the government admits, so the real figure surely is higher) are squandered because of fraud. Here’s some info from an AP report.

A nationwide crackdown is coming for people fraudulently drawing unemployment payments — those who were never eligible and workers who keep getting checks after they return to work — a $17 billion benefits swindle last year alone, say federal officials. …As much as 30 percent of the wrong payments in 2010 went to people who had returned to the workforce but continued to claim benefits, according to Dale Ziegler, deputy administrator for the Office of Unemployment Insurance at the U.S. Department of Labor.

Our second example comes from a news report in West Virginia, and it deals with the weatherization program (one of the flagship components of Obama’s failed stimulus scheme). You won’t be surprised to learn the program has been a farce.

Federal audits are turning up misspent taxpayer dollars in a $5 billion stimulus program aimed at lowering the utility bills of disabled, poor and older Americans by making their homes more energy-efficient. In West Virginia, which received $38 million in weatherization funds, some of the money went for lobbying, to consultants who did little work and to recipients with connections to state officials who are doling out the funds, the Energy Department’s inspector general found. In one case, West Virginia paid $25,000 to a lawyer for writing two sentences stating that weatherization contracts had been reviewed, reportedly after four hours’ work at a state office, according to a report analyzing how the federal stimulus money was used. A $20,000 consulting fee was paid to the former director of the state’s weatherization program after he left the job in May 2009 even though there were no specific work requirements set for the consulting contract. …more than half of weatherized homes that were re-inspected needed to be redone because of faulty work, the report said. Meanwhile, $2,500 was spent on lobbying in Washington – even though such use is expressly forbidden – to “get the word out” that there wasn’t enough funding to administer stimulus programs, it said.

These stories aren’t even the tip of the iceberg. They are a few tiny crystals in one snowflake sitting on the top of the tip of the iceberg. The politicians want more revenue so they can maintain this corrupt scam.

Read Full Post »

Based on this morning’s numbers, I’ve updated my chart showing what the Obama Administration said would happen with the so-called stimulus compared to what actually has happened. As you can see, the unemployment rate is about 2.5 percentage points higher than the White House claimed it would be at this point.

Since I just did an I-told-you-so post about Greece, I may as well pat myself on the back again (albeit for another completely obvious prediction). Here’s the video I narrated a couple of years ago on the Obama faux stimulus.

Read Full Post »

The Labor Department released its latest job numbers today and they remind me of Clint Eastwood’s 1966 classic, “The Good, the Bad, and the Ugly.”

The good news is that the economy created 244,000 new jobs, the biggest gain in almost one year. And the jobs were in the productive sector of the economy rather than government, so the added employment means more taxpayers rather than more tax-consumers.

The bad news is that the jobless rate increased to 9.0 percent, up from 8.8 percent last month. This means that the number of people looking for work is increasing at a faster rate than the number of jobs being created.

The ugly news, at least from the perspective of the Obama Administration, is that the latest data is yet another piece of evidence showing that the White House was grossly mistaken when it claimed that bigger government would translate into better economic performance.

The blue line in this chart shows the Administration’s prediction of what would happen to unemployment if the so-called stimulus was enacted. The dots represent the actual unemployment rate.

As you can see, the unemployment rate is easily more than two percentage points higher than the White House said it would be at this time.

Administration apologists respond by moving the goal posts, asserting that the original prediction underestimated the economy’s weakness and the unemployment data would have been even worse in the absence of more wasteful spending.

Since economists are lousy at predicting the future, that’s a legitimate argument.

But is it an accurate argument? Since there’s no parallel universe where we can conduct policy experiments, there’s no way of proving which side is wrong. Nonetheless, this chart from the Minneapolis Federal Reserve Bank is rather revealing. It compares employment numbers after the deep recession of the early 1980s with the employment numbers from the recent deep recession.

Perhaps I’m biased and reading this chart incorrectly, but it certainly seems as if Reaganomics generated better results than Obamanomics. Maybe it’s time to realize that government is the problem, not the solution?

Read Full Post »

Ronald Reagan would have been 100 years old on February 6, so let’s celebrate his life by comparing the success of his pro-market policies with the failure of Barack Obama’s policies (which are basically a continuation of George W. Bush’s policies, so this is not a partisan jab).

The Federal Reserve Bank of Minneapolis has a fascinating (at least for economic geeks) interactive webpage that allows readers to compare economic downturns and recoveries, both on the basis of output and employment.

The results are remarkable. Reagan focused on reducing the burden of government and the economy responded. Obama (and Bush) tried the opposite approach, but spending, bailouts, and intervention have not worked. This first chart shows economic output.

The employment chart below provides an equally stark comparison. If anything, this second chart is even more damning since employment has not bounced back from the trough. But that shouldn’t be too surprising. Why create jobs when government is subsidizing unemployment and penalizing production? And we already know the so-called stimulus has been a flop.

None of this should be interpreted to mean Reagan is ready for sainthood. He made plenty of compromises during his eight years in office, and some of them were detours in the wrong direction. But the general direction was positive, which is why he’s the best President of my lifetime.*

*Though he may not be the best President of the 20th Century.

Read Full Post »

Previous posts on this blog have featured charts showing that Obama’s policies are not working (see here and here). I even showed a cartoon making the same point.And I cited a column with data comparing Reagan and Obama.

The Heritage Foundation has a very powerful addition to this genre, a chart comparing job performance during the Reagan and Obama Administrations.

This is a remarkable image, but let’s start with some disclaimers. There are lots of factors that impact economic performance, and many of them are outside the control of politicians. Moreover, it is impossible to know what would have happened in the past two years or in the early 1980s if Obama or Reagan had chosen different policies.

But even with these caveats, it is difficult to look at this chart and not conclude that Obama’s big government policies are much less successful than Reagan’s small government policies.

Read Full Post »

I don’t now why I bothered spending all that time perusing the writings of Paul Krugman and Larry Summers in order to produce my previous blog post when this Michael Ramirez cartoon makes the same point in a much simpler way.

Michael Ramirez

Read Full Post »

The two main political parties are sniping at each other about the just-concluded tax deal, largely because Republicans are happy and Democrats are displeased that all of the 2001/2003 tax cuts are being extended for all taxpayers.

Almost nobody is paying attention to the new spending that is in the agreement, however, most notably the 13-month extension of unemployment benefits. And to the extent anybody is paying attention, a small handful of fiscal conservatives wanted to offset that new spending by reducing spending someplace else.

That sentiment is laudable, but somebody should be pointing out that this policy actually is bad news for workers. Here are some excerpts from a Wall Street Journal story, which reports on a study from the San Francisco Federal Reserve Bank.

A recent study by the Federal Reserve Bank of San Francisco found the unemployment rate at the end of 2009 would have been nearly half a percentage point lower—9.6%, instead of 10%—if jobless benefits hadn’t been extended beyond their usual 26 weeks to as much as 99 weeks. …The extension of jobless benefits is likely to worsen that trend for at least several months. For one, individuals not actively searching for work or willing to take available jobs may claim they are unemployed in order to receive benefits. That could artificially boost the size of the labor force, which is used to determine the unemployment rate. Another concern, as the San Francisco Fed notes, is that the extension of jobless benefits may “reduce the intensity” with which the unemployed search for work. Longer term, this could lead to a higher level of structural unemployment in the economy as workers’ skills erode.

Some leftists may think this is propaganda from free-market purists, yet the San Francisco Fed certainly does not have a reputation for libertarian views. Nonetheless, perhaps it would be a good idea to see what some other people have to say. Here’s what one well-known economist wrote in a textbook.

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

Was this Milton Friedman? Ludwig von Mises? Nope, the author of this mean-spirited right-wing bile is Paul Krugman. And here’s something else written by an economist about the impact of unemployment benefits.

Empirical evidence shows that two causes are welfare payments and unemployment insurance. …unemployment insurance increases the measure of unemployment by inducing people to say that they are job hunting in order to collect benefits. The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer. …Unemployment insurance also extends the time a person stays off the job. Clark and I estimated that the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months. If unemployment insurance were eliminated, the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000. This is all the more significant in light of the fact that less than half of the unemployed receive insurance benefits, largely because many have not worked enough to qualify.

Who wrote this? A Tea Party fanatic? A knuckle-dragging GOP Congressman? Hardly, this passage was penned by Larry Summers, the outgoing Chairman of Barack Obama’s National Economic Council.

Given their partisan leanings, you won’t be surprised that Krugman and Summers now semi-disavow their academic writings on this issue, claiming that somehow their analysis does not apply in the current situation. But the bottom line is that incentives matter. If you pay people to remain unemployed, they will have less reason to find a job. The only real issue is the degree to which unemployment benefits increase joblessness.

This doesn’t imply that lawmakers should do nothing about unemployment, but it does suggest that their focus should be on pro-growth policies that will facilitate job creation. Permanently lower tax rates would help, as would reduction in government spending so that more resources would be available for the economy’s productive sector. Trade liberalization and deregulation also would be a good idea.

Unfortunately, all these ideas reduce the power of the political elite, so they are not nearly as popular in Washington as unemployment benefits.

Read Full Post »

The Bureau of Labor Statistics announced this morning that the unemployment rate jumped to 9.8 percent last month. As you can see from the chart, the White House claimed that if we enacted the so-called stimulus, the unemployment rate today would be about 7 percent.

It’s never wise to over-interpret the meaning on a single month’s data, and it’s also a mistake to credit or blame any one policy for the economy’s performance, but it certainly does seem that the combination of bigger government and more intervention is not a recipe for growth.

Maybe the President should reverse course and try free markets and smaller government. Here’s a helpful six-minute tutorial.

Read Full Post »

The new unemployment data has been released and it’s not a pretty picture. Literally and figuratively. This image is all we need to know about the success of President Obama’s big-government policies. The lower line is from a White House report in early 2009 and it shows the level of unemployment the Administration said we would have if the so-called stimulus was adopted. The darker dots show the actual monthly unemployment rate. At what point will the beltway politicians concede that making government bigger is not a recipe for prosperity?

They say the definition of insanity is doing the same thing over and over again while expecting a different result. The Obama White House imposed an $800-billion plus faux stimulus on the economy (actually more than $1 trillion if additional interest costs are included). They’ve also passed all sorts of additional legislation, most of which have been referred to as jobs bills. Yet the unemployment situation is stagnant and the economy is far weaker than is normally the case when pulling out of a downturn.

But don’t worry, Nancy Pelosi said that unemployment benefits are stimulative!

Read Full Post »

The bureaucrats at the International Labor Organization (which shouldn’t even exist) are correct to note that high levels of unemployment threaten social unrest. But like most left-wing international bureaucracies, they think the solution is more government - including so-called stimulus and government intervention in labor markets.

The extended loss of employment and growing perceptions of unfairness risked increasing social tension, the ILO said. In 35 countries for which data exists, nearly 40 per cent of jobseekers have been without work for more than one year, running risks of demoralisation and mental health problems, and young people were disproportionately hit by unemployment. It noted that social unrest related to the crisis has been reported in at least 25 countries, including some recovering emerging economies. …Torres warned governments against withdrawing fiscal stimulus measures while recovery was still weak. The ILO recommended…A combination of active labour market policies including work-sharing that target vulnerable groups such as young people, and training [and] A closer link between wages and productivity gains in surplus countries to boost demand and job creation;

Read Full Post »

A new study from the Small Business Administration’s Office of Advocacy concludes that annual regulatory costs jumped by nearly $600 billion between 2005 and 2008. Thanks to the Obama Administration’s big-government agenda, the burden of red tape today doubtlessly is much higher, but the 2008 estimate is enough to generate some very sobering numbers. A $1.75 trillion regulatory cost works out to be more than $15,500 for every household and more than $8,000 for every employee in the country. Red tape is especially challenging for smaller firms, as noted in these key findings from the summary:
The research finds that the total costs of federal regulations have further increased from the level established in the 2005 study, as have the costs per employee. More specifically, the total cost of federal regulations has increased to $1.75 trillion, while the updated cost per employee for firms with fewer than 20 employees is now $10,585 (a 36 percent difference between the costs incurred by small firms when compared with their larger counterparts).
To be sure, some forms of regulation, such as environmental protection, generate benefits. There generally are not good estimates needed to produce cost-benefit analyses, but it is quite likely that the costs are much higher than necessary – particularly for economic regulation, the burden of which is more than three times larger than the costs of environmental regulation.

Read Full Post »

One of the main factors determining incumbent election success is economic performance. When disposable income is rising and people feel good about the future, it is difficult for an incumbent to lose. So why, then, is Obama pursuing policies that are undermining growth? Sure, it is in the interests of the left in the long run to create more dependency on government. That’s one of the reasons why there is nothing resembling a free market party in most European nations. But America isn’t at that stage yet (thankfully). And as John Stossel writes, Obama’s bad government policy is causing joblessness and uncertainty. This is going to hurt Democrats this November and may linger until 2012, when Obama would suffer the consequences (in the unlikely event that Republicans put forth a semi-decent candidate).
Why isn’t the economy recovering? After previous recessions, unemployment didn’t get stuck at close to 10 percent. If left alone, the economy can and does heal itself, as the mistakes of the previous inflationary boom are corrected. The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts. When rules are unintelligible and unpredictable, when new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama’s vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden. In at least three big areas — health insurance, financial regulation and taxes — no one can know what will happen. …Nothing more effectively freezes business in place than what economist and historian Robert Higgs calls “regime uncertainty.”

Read Full Post »

Michael Fleischer is a brave man. He exposed himself and his company to retribution and attack by explaining how Obama’s policies are discouraging job creation in a column for the Wall Street Journal. Let’s hope he doesn’t mysteriously get audited, because he provides valuable real-world insight into how taxes and other forms of government intervention hinder job creation (and reduce take-home pay for those lucky enough to still have jobs).

Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—$9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally. Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers’ comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally’s Medicare and $3,661 for her Social Security. When you add it all up, it costs $74,000 to put $44,000 in Sally’s pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally’s job each year. Because my company has been conscripted by the government and forced to serve as a tax collector, we have lost control of a big chunk of our cost structure. Tax increases, whether cloaked as changes in unemployment or disability insurance, Medicare increases or in any other form can dramatically alter our financial situation. With government spending and deficits growing as fast as they have been, you know that more tax increases are coming—for my company, and even for Sally too. Companies have also been pressed into serving as providers of health insurance. In a saner world, health insurance would be something that individuals buy for themselves and their families, just as they do with auto insurance. Now, adding to the insanity, there is ObamaCare. Every year, we negotiate a renewal to our health coverage. This year, our provider demanded a 28% increase in premiums—for a lesser plan. This is in part a tax increase that the federal government has co-opted insurance providers to collect. We had never faced an increase anywhere near this large; in each of the last two years, the increase was under 10%. To offset tax increases and steepening rises in health-insurance premiums, my company needs sustainably higher profits and sales—something unlikely in this “summer of recovery.” We can’t pass the additional costs onto our customers, because the market is too tight and we’d lose sales. Only governments can raise prices repeatedly and pretend there will be no consequences. And even if the economic outlook were more encouraging, increasing revenues is always uncertain and expensive. As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company’s vulnerability to government decisions to raise taxes, to policies that make health insurance more expensive, and to the difficulties of this economic environment. A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government’s message is unmistakable: Creating a new job carries a punishing price.

Read Full Post »

« Newer Posts - Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 2,285 other followers

%d bloggers like this: