Aside from showing America sinking beneath a mountain of debt, President Obama's 2011 budget assumes an unemployment rate of 10% in 2010 - about twice the Bush eight-year average - improving at about 1% per year thereafter. Thus his new promise of a laser-like focus on jobs - oops, that is when he is not flogging health care, cheer-leading the Democratic party, or hosting a Super Bowl party. While we all know that the jobs deficit is Bush's fault, a closer look shows four causal factors.
1. The unusually deep cyclical recession - now statistically ended. Economists would advise that the stock market (with a 60% gain since March 2009) is a leading indicator, and that jobs can be expected to lag. Current data (with the cross-currents common at an inflection point) show the economy getting less bad, but projections of a tepid 3-4% GDP growth in 2010 would barely create the 150,000 jobs per month needed just to break even. There may be another "jobs bill", but if the $787 billion Stimulus bill couldn't do it, don't expect much. Expect a slow slog with the Fed's mortgage support ending in April, remaining state budget and commercial real estate problems, many Bush tax cuts expiring at the end of the year, and the beginning of Fed rate hikes.
2. The delivered productivity promise of Information Technology. In a couple of centuries we transitioned from 90% agricultural jobs to under 5%. Those 85% moved largely to industrial jobs which we then automated. (About 10 % of jobs are now in manufacturing.) For decades we've been putting many of our best minds and lots of money into stuff that would let one office worker do the work of 10. Well, it worked. Ongoing 3% productivity (half of the recent rate) implies a need to replace three million jobs per year.
3. The rise of China as a manufacturing powerhouse. As we move toward the malaise of socialism, the Chinese have moved rapidly toward the dynamism of capitalism. The world isn't really a zero-sum game, and we can benefit from having somebody else carry part of the load, but we have been quite naive in letting the Asians have our technology and our markets. Perhaps the Tea Party contingent will make WalMart go back to Sam Walton's "Buy American" roots, and the coastal elites will give up their brake-challenged Priuses. At a minimum, we cannot afford to continue to solve all of the world's problems.
4. Government policies aimed at those who create jobs.
- When allowed to follow its instincts, this administration has sought large government participation in numerous industries, increased environmental restrictions, increased business taxes, sought massive costs for subsidized public health care, increased the minimum wage, tried to make unionization easier, and run up massive inflationary deficits while stalling available free trade agreements and ignoring opportunities to foster lending to small businesses. No speech will overcome the reality of that.
- And when we need strong management, we get a president and Congress who cannot figure out how to do anything - not only on budgets and jobs, but pick a subject - financial regulatory reform, health care reform, closing Guantanamo, reining in Iran, deciding on an Afghanistan strategy, picking a family dog.
So, where is the optimism?
- Most of us - particularly at higher income levels - have jobs or retirement savings. Company earnings are good. The Asian economies remain strong. The world is not collapsing. That's good for the managerial class, but doesn't help the lower-middle working class.
- The growing gap between the "Have's" and the "Have-not's" is in part a result of massive immigration from Latin America. While it is not a direct correlation, the number of immigrants in the last decade is not far from the number of unemployed. There is opportunity here to strike a better balance.
- Our political system of checks and balances and regular elections lets us correct - even when we make big mistakes. All polls show an increasingly unpopular president and Congress - not because of gridlock, but because of their agenda. Much of this agenda will eventually be reversed, but the potentially irreversible big things to worry about are the huge deficits being created and the potential of more health care entitlements.
- The country has been in deep holes before - the Civil War; World War I and II; the Great Depression - and emerged to new greatness. We do have a great constitution which actually works, a population that has traditionally rewarded individual responsibility and initiative, and the resources in transportation, housing, communications, education, banking, agriculture, and manufacturing to remain the world's greatest nation.
And, if nothing else, we are a nation of optimists.
bill bowen - 2/19/10