That Horrible Jobs Report
One of my heroes, the political journalist Jack Germond, has a saying: "When the economy is bad, voters blame the party in power. When the economy is good, voters turn to other issues."
In between the oil spill and White House job offers to Democratic primary candidates, we've had a short break from economic news lately. But the break ended on Friday, with the release of the latest job numbers. Try as he might, the president can't spin these. The overwhelming majority of the jobs created in May are temporary census positions. It's likely that some of the new 41,000 private-sector jobs are due to cleanup from the BP spill. Unsurprisingly, the markets fell on Friday, despite the president's reassurance that the economy is on the right track.
Obama's supporters draw the Reagan comparison. They say the economy was crummy for much of 1981 and 1982, but President Reagan "stayed the course" and the rest is history. Obama, in this view, should stay the course as well--and perhaps advocate more fiscal stimulus to get things moving. Before you know it, the president's supporters say, it will be morning in America again.
But what if this comparison is false? President Reagan inherited stagflation. "Staying the course" meant giving Paul Volcker time to wring inflation out of the system by raising interest rates. Fiscal stimulus came in the form of supply-side tax cuts that boosted incentives to consume and invest. The consequence of these policies was 25 years of economic expansion, interrupted by just two of the shortest and shallowest recessions in world history.
Obama's problem is that we are still arguing over what sort of economic situation he inherited. For some, the problem is too much debt. For others, the problem is a lack of aggregate demand. For still others, the economy is in the midst of a massive sectoral shift from construction to social services. For some, free markets and deregulation were responsible for the crisis. For others, government intervention in the housing sector and a lax Federal Reserve were the true causes.
Obama and his advisers decided the problem was a lack of aggregate demand. They chose the opposite of the Reagan policy: fiscal stimulus through direct spending and temporary tax cuts, intervention in the economy through bailouts and regulations, and a loose monetary policy. As William Galston recently pointed out, this is similar to the response of the Japanese government when its housing bubble burst in the early 1990s. The result was a Lost Decade that continues to this day. So far, the American economy is living up to the Japanese example.
Maybe Obama and his team have the right theory and the right program, and will be vindicated by November 2012. Or perhaps their theory is right, but their program is wrong. Or perhaps neither their theory nor their program is correct--in which case we are all in for some rough days ahead.
What do you think?
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May '10
Re: That Horrible Jobs Report
This is one situation where you have to forget the macro and go micro to properly analyze it. Look at the economy from the perspective of a small business. Right now, you see:
1) Individual top-end tax rates are set to increase, which will chop down available investment capital, right when the banks won't lend
2) New mandates on health insurance are coming, so that you can't write voluntary contracts with your employees regarding compensation- the federal government has dictated the arrangements for you, and it will cost you more, but you won't know how much for several years.
3) New environmental requirements are likely to be imposed that will significantly affect transportation and energy costs.
What do you do if you are running operations for a small company (as I did a few years ago)? You don't hire employees- you contract out on as short a term basis as you can for as long as you can. And you don't buy any vehicles, or energy-intensive machinery. You pull in your horns and try to wait it out.
"B-b-b-but, I don't understand why no private industry jobs are being created....."
Re: That Horrible Jobs Report
The Japanese always prided themselves on their ability to manage growth, industry, a financial system, and an economy. In the glory days of MITI and keiretsu, it really seemed like they had figured it out. Then came The Lost Decade (which is really almost The Lost Two Decades) and we learned a lesson: you can't manage a national economy forever.
I say "we" learned that lesson, but it's clear that the Obama administration didn't. Let's hope our Lost Decade only lasts ten years.
Re: That Horrible Jobs Report
Eventually we have to ask: when do you stop counting lost decades? Will Japan ever get its groove back? Can't help but think here, too, in a different key, of Britain...
Re: That Horrible Jobs Report
Deaths now outnumber births in Japan and the health ministry estimates a 25 percent population decline by 2050. Hard to see how Japan will ever reinvigorate economic growth with the world's most rapidly aging workforce.
Re: That Horrible Jobs Report
It's funny -- here we are talking lost decades, while over in Ursula's conversation they're talking lost generations. The contention is that the generations between the boomers and the kids of the boomers are almost invisible to marketers. It certainly seems right that an economy so dependent on the preferences and disposable income of a single cohort and its offspring is more likely to be weak on fundamentals. There's an ugly picture for you -- the boomers presiding over a decadent decade, golden years for them and theirs and a tough, unglamorous reality for the rest.
The good news? Demographics. Opportunity. And, still, work ethic.
May '10
Re: That Horrible Jobs Report
One country's 'Lost Decade' is 'two wonderfully prosperous 5-year plans back to back' in another. I just heard on MSNBC that Tractor Production is ahead of plan and that people are generally happy and more content than under that Bush.
Re: That Horrible Jobs Report
James's depressing point reminds me of an excellent David Frum commentary for Marketplace last year. In it, Frum speculates that "the boomers are entering their retirement years. They will be huge net sellers of assets through the 2040s. Other factors may buoy asset markets. This one colossal demographic factor will depress them."
This sort of economy will be risk averse. It will be reluctant to innovate and change, because change is disruptive. To keep America's edge, government policy will have to encourage risk-taking, competition, and entrepreneurship. Otherwise the economy might calcify. It would be macroeconomic osteoporosis until the Boomers disappear.
Unfortunately, the Boomers' power is not only economic, but political. And economic policy is now running in the opposite, static direction.
May '10
Re: That Horrible Jobs Report
Whether or not you agree with David on that (I tend to believe that it will be about a wash, with household changes, immigration, and replacement of the boomer-birth period housing stock canceling out many of the fire sale effects), Matthew's second point is key: government policy is presently dedicated to protection of legacy business and power bases, and stifling innovation wherever it dares to threaten a donor (e.g., SEIU). Exhibit A is the health care bill, which contained nothing innovative in it whatever.
After they smother the internet to protect their preferred newspapers, it will get worse. Unless the TEA Partiers and traditional Republicans stop feuding over power grabs and concentrate on throwing the rascals out.