03 Sep 2010 ‘It’s the Jobs Stupid’
Political strategist James Carville won the election for Bill Clinton when he turned the campaign’s focus toward the economy to unseat President George H. W. Bush who was considered unbeatable because of his successful foreign policy. An article in the Capital Journal Section of today’s Wall Street Journal by Gerald Seib sums up the problem facing not only the Democratic party this election cycle but the economy in general. “Fact One: The unemployment rate is the most important of all leading political indicators. Fact Two: If the August unemployment number to be announced Friday tops 9% [it increased from 9.5% to 9.6% last month] the jobless rate will have been above that level for 16 straight months. Already, the U.S. is mired in the longest such stretch of 9%-plus joblessness in more than a quarter of a century.”
While unemployment is a major political issue, Seib points out a larger more strategic problem. “The American economy hasn’t been a very robust jobs-producer for quite a while. That’s the broader question that needs to be discussed, even as we work on the immediate problem.” Seib says that “indeed, it has been perhaps four decades since America’s economy has been the kind of roaring jobs machine that average Americans, aspiring politicians and ambitious business leaders all would like to see.”
The huge stimulus measures taken in the past year have had little impact on private sector job creation yet government payrolls have blossomed. Over the summer it appeared that the economy’s momentum was slowing and talk of a “double dip” recession became common. Today’s jobs data help to defray the possibility as private US companies added 67,000 jobs in August and an upwardly revised 107,000 jobs in July.
As the mid-term elections approach, jobs are front and center. President Obama is considering making permanent the research and development tax credit which is due to expire the end of this year. The measure is supported by American companies that spend millions on R&D. Bloom berg reports that “the White House also has been considering payroll tax relief to encourage new hiring, more tax breaks for small businesses and new infrastructure spending, according to people familiar with the discussions who spoke on condition of anonymity because the discussions are preliminary.” Christina Romer, the departing White House chief economist, said in a speech in Washington September 1st: “The only surefire ways for policy makers to substantially increase aggregate demand in the short run are for the government to spend more and tax less,”. “We should be moving forward on both fronts.” Well she’s half right.
Mr. Seib states that “it would be [nice] to figure out what combination of public policies and private initiatives would help the national jobs machine rev up to a higher, sustained level.” We couldn’t agree more with the sentiment, but must confess more than a little doubt in the likelihood. Simply put, government today seems far more short-term focused than strategic. It is more concerned with its own growth than it is in ensuring its long term survival – which requires a healthy growing tax base.
The “private initiatives” sought by companies are quite simply anything that helps them increase their profits. Without profits businesses don’t grow, they don’t hire, and eventually they don’t survive. Government growth has brought increased taxes and regulations which only serve to reduce businesses’ profits. Increased globalization according to Robert Shapiro, “has brought an explosion of competition for American firms, limiting their ability to raise prices precisely when their fixed costs have started soaring in the areas of health, energy and pensions.”
Mr. Seib quotes two more economists from the left and right sides of the political spectrum:
Liberal economist Dean Baker, co-director of the Center for Economic and Policy Research, for example, says the key is attacking America’s long-term trade imbalance. That requires expanding manufacturing, which, in turn, argues for pushing the value of the dollar down to make American exports cheaper. That isn’t politically easy, because driving down the dollar also would drive up the cost of all those imports Americans love. Mr. Baker argues that it’s a long-term job creator.
The more conservative Mr. Holtz-Eakin suggests a three-pronged attack. First, he would stop using the tax system to achieve social goals and change it to focus, almost obsessively, on fostering economic growth. Second, he would liberate corporations to devote more capital to jobs by curbing the use of them as “vessels for social benefits” such as health insurance, which would be provided in other ways. And third, he would radically improve the American education system, which is “failing to a remarkable degree in delivering to the labor force people with the skills needed to compete.”
There is wisdom in all of these suggestions. Whether or not they will see political light, only time, and elections will tell. The huge potential for this economy remains, but politicians have taken it for granted entirely too long. The “roaring jobs machine” of an era gone by, may or may never return again. It is arguably for the first time in our county’s history, up to policy makers. Will government continue to grow, taking an increasing role in the lives of every American and at the expense of those who produce, or will it partner with and foster growth of those who produce, increased their initiatives?
During WWII, the cold war, and the ‘space race’ America learned to produce things and ideas at a pace unrivaled in world history. We also cannot ignore the huge impact of the post-war ‘baby boom.’ This giant group of consumers made huge demands on our economy every step of the way as they grew up – from new houses and nurseries with Dr. Spock, to station wagons, to television, to rock ‘n roll, to love bugs, to eight tracks, to skyrocketing college costs, . . . to AARP to, well you get the picture.
Jobs will come back when businesses leaders begin hiring gain. They will not do so unless they believe greater profits can be derived by doing so. Government can help, in the short term by getting out of the way with fewer taxes and regulations. Strategically government policy makers can adopt a friendlier and supportive attitude toward business to actively incent hiring, research, development, growth, and risk taking – globally. A strong stable national economy is in EVERYONE’s best interest and business is its engine. Washington, will you put gas in the tank, or siphon it out?
Have a great Labor Day weekend.