PrintOctober 13, 2009
Is there really a recovery on the horizon?
On October 2 the U.S. Labor Department released its September 2009 jobs report. The sycophants in the mainstream media breathed a sigh of relief that only 263,000 people lost their jobs and the unemployment rate went up a slight .1%. Per the same Labor Department report the current labor force is: 154,006,000 and those employed are 138,864,000, thus the unemployment rate of 9.8%.
However, per a projected Labor Force Change Report the Labor Department predicts the labor force will be 157,721,000 by the end of 2010 and 162,822,000 by the end of 2015.
To maintain the same unemployment rate as we have now (9.8%) the economy would have to create over 3,000,000 new jobs by the end of 2010 and 7,700,000 new jobs by the end of 2015. (Note 1)
This cannot be done as long as the private sector is hamstrung by new taxes and regulations and the annual government deficits continue in the near trillion dollar range for the next ten years.
In recent days there have been headlines, articles and proclamations by the Obama Administration stating that the recovery has begun and the economy has hit bottom. They point to the stock market rebound as a major indicator that the country is on the road to recovery. However, many of the companies listed on the major exchanges have seen recovery in their profits due to a reduction in costs (e.g. job cuts) and the rapidly sinking value of the dollar inflating their overseas operations measured in dollars. The banking and financial sector's improvement has come at the expense of the American taxpayer and borrower.
This Administration is adept at Orwellian double-speak, so perhaps they will succeed in promoting an economic oxymoron: a jobless recovery. That is what we are faced with today as businesses both large and small continue to sit on the sidelines. Unfortunately, those in the Obama hierarchy, most of whom have no hands-on business experience, fail to understand that job creation and business expansion depends, in great part, on the knowledge that there will be a stable economic environment for the foreseeable future. The more cynical among us might say Obama and his underlings are aware of this but are so determined to pass their radical agenda they do not care.
As long as the Euro-socialist policies of this Administration are pursued or passed, uncertainty will reign supreme and the necessary jobs will not be created as we watch the rest of the world experience economic growth.
The current budget, as approved by Congress, averages nearly a trillion dollar annual deficit for the next ten years. That despite the largest proposed tax increase in our history, virtually all of which will fall on higher income earners and businesses. However, as reflected by the annual deficit levels, taxes will have to be raised even more in the coming years as those budget shortfalls will be unsustainable. We will have entered into a vicious cycle where higher spending will require higher taxes and higher taxes will reduce tax receipts to the government and cash available for business expansion thereby perpetuating a never ending downward spiral unless government spending is greatly curtailed.
In Congress and the White House there exists a determination to involve government in the day to day activity of businesses large and small, whether by passing new laws (e.g. Cap and Trade, Health Care Reform, Union Card Check), issuing more invasive regulations, making veiled or direct audit threats or holding public hearings to demonize capitalism as a whole. As long as this excessive government involvement continues, the engine of business that produces virtually all the jobs (and by doing so produces the government's income stream) will operate at a level barely sufficient to stay in operation, look to relocate off shore if feasible and find ways to minimize costs (labor being the largest), and wait out the storm until some sanity returns while hoping the damage done to the economy is not irreversible.
The Chinese have sent many direct and powerful messages to our Treasury Department concerning our profligate spending and borrowing. China has started to sell some of the bonds it holds and has begun to dramatically reduce the level of debt it buys from the United States as compared to a year ago. In order to obtain the trillions of dollars the Government will need, interest rates will have to be raised to entice overseas lenders and more money must be borrowed from the citizens of the United States. This will reduce the amount of capital available to invest in new ventures and start-up companies. All the while, as a result of the borrowing by the Treasury and the printing of money by the Federal Reserve, the specter of runaway inflation looms on the horizon.
The solution to the employment crisis we are facing was formulated by Ronald Reagan in the early 1980's. In 1983 the unemployment rate peaked at 10.8%. Within 2 years it was down to 7.3% and within 4 years 6.6%. President Reagan slashed taxes on income and capital, controlled spending, promoted the virtues of capitalism and limited the regulatory efforts of the bureaucracy. This triggered a 25 year period (1983-2008) of the greatest economic growth in the country's history.
On the other hand, in the 1930's the jobless rate averaged 18.7% over a ten year span. (1931-41) During this period the government dramatically increased taxes and spending, created numerous new laws and regulations to hamstring business, demonized capitalism and granted nearly unlimited powers to unions. Only with the onset of World War II did job creation begin.
Despite the lessons of history we are again pursuing the policies of the 1930's with potentially similar results. The current Administration, Congress and their sycophants in the mainstream media have been successful in their demagoguery of the business community and capitalism for all manner of perceived sins while touting government as the solution and creator of all good things; but government cannot create wealth or jobs. As a society we are about to enter into a high unemployment environment for many years to come as our economy stagnates under the weight of oppressive government and what recovery there will be will be limited to large multi-national corporations in bed with Washington. There is no recovery on the horizon for the rest of us.
Note 1: Assume 10% of the 2010 projected labor force is unemployed (157,721,000 x .90= 141,949,000 employed) less September 2009 actual employment (141,949,000 - 138,864,000 = 3,085,000)
