Monday, September 3, 2012

The Inconvenient Truths about Jobs

For the Democrats a major inconvenient truth about their economic policy is found in the nationwide unemployment rate. At 8.3% for July 2012, almost one in twelve people who want to work can’t. That statistic does not reflect those who have “dropped out” of the labor force; nor does it include those who have jobs that underutilize their skills.

Worse that the bald statistics, the Democrats have not presented a clear, cogent strategy for generating new jobs in the economy. The best they can say is that the Republicans would have done worse. Perhaps at their convention this week they’ll come up with a better answer, but I’m not holding my breath.

The Republican mantra seems to be that we are in this mess because (1) Democrats want big government, (2) Democrats are beholden to labor unions, which cause bloated government payrolls and have a negative impact on job growth and (3) Democrats refuse to balance the Federal budget and eliminate regulations. Had they done so, then the free markets would be released from their prisons and would solve the economic
problems that beset us.

Inconvenient Truth #1: Big Government saved us from a Depression.

Republicans, regardless of how they voted at the time, seem to be uniformly against the various actions taken by the multiple segments of the Federal Government to mitigate the economic swoon. Participating were the Federal Reserve, the Bush and Obama administrations and Congress.

Unfortunately for Republicans the very actions they now deny and degrade are those that economists across the political spectrum agree have had a positive impact on our economy. In Blinder & Zandi’s paper “How the Great Recession Was Brought to an End” they state that “without the government’s response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation.”

Inconvenient Truth #2: Focusing on Busting Public Sector Unions does not Translate into Jobs

Two recently elected governors have made eliminating effective public sector unions a major plank of their legislative agendas as a way to balance state budgets and (presumably) encourage private sector employment. Gov. Walker led a highly effective process in Wisconsin to strip unions of many of their previously granted rights. Gov. Christie in New Jersey has also vociferously taken on the unions.
Unfortunately, while the governors won their battles against the public unions, they have lost the war against unemployment.

For July 2012, Wisconsin is tied in 22nd place among states in unemployment rate at 7.3%; New Jersey comes in 47th at 9.8%. The overall U.S. unemployment rate is 8.3%. So Wisconsin is better, New Jersey much worse. Maybe that had to do with the employment mix each state embodied prior to the recession. Perhaps instead of looking at the current unemployment rates, we should consider how employment rates have changed over the last year (i.e. after the governors gutted the unions) as a better measure of governmental policies than at the actual rate of unemployment.

Wisconsin was in 40th place of the states: its unemployment rate decreased only .3% from 7.6% to 7.3% in the last twelve months. That looks positively glowing when compared to New Jersey in 49th place (only New York was worse). New Jersey’s unemployment rate increased .4% over the past twelve months from 9.4% to 9.8%.

The policy of public sector union busting has worked so well in these states that the Republican national platform includes eliminating dues checkoff for public employee unions. So much for creating jobs being the real goal.

Inconvenient Truth #3: Balancing the Federal Budget Will Not Immediately Improve the Economy

On the website Republicans claim that balancing the budget will “Bring Certainty to Job Creators.” Perhaps that is true, but certainty of what? It will provide the certainty of increased unemployment (what job creator is going to hire all those people Republicans plan to fire from the Federal government?). Balancing the budget without raising taxes can only be done through decreased Federal spending. Decreased Federal spending translates into reduced demand. When companies face reduced demand—in fact are certain there will be reduced demand (maybe that’s the certainty Republicans will provide to job creators?) investment and hiring both decrease.

When investment and hiring decrease in both public and private sectors, the economy enters another recession.

We don’t have to try this experiment ourselves. Europe has been modeling it for us through the austerity programs they have introduced. Overall European unemployment is 11.3% for July 2012, up from 10.1% a year earlier. Most of Europe has entered a double-dip recession.

The Solution is Clear but not Easy—and requires another essay since this one is too long already.

Suffice it to say there are answers, which neither party advocates, to solve our problem. I’ll make my suggestions next post.

~ Jim

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