Economics, Pethokoukis

Does this look like an economy that’s moving forward? 9 reasons why it really doesn’t

Image credit: David Goehring, Flickr (CC BY 2.0)

Image credit: David Goehring, Flickr (CC BY 2.0)

I would like to believe the U.S. economy is firmly back on track and headed toward renewed prosperity. A slow track, to be sure, but at least things are moving forward. That would be something, at least.

Except the data show a recovery in reverse, headed the wrong way.

1. More jobs were created per month last year than this year (and pitifully few in both years). Since the start of the year, job growth has averaged 139,000 per month vs. an average monthly gain of 153,000 in 2011. At this year’s pace, it will take 11 years to bring the unemployment rate back down to 5%.

2. Back in 2009, the incoming Obama administration predicted sub-6% unemployment in 2012 if Congress passed the $800 billion stimulus plan. Instead, we’ve had 43 straight months of 8%-plus unemployment. And that high level of sustained joblessness is likely contributing to a deterioration in the U.S. labor force and higher structural unemployment.

3. The labor force participation rate is lower today than at the start of the year, and lower than at the start of 2011. Yes, the economy has created private-sector jobs every month for the past 30 months, since February 2010. But during that span, labor force participation has continued to drop. If the participation rate were the same today as it was in February 2010, when the job market supposedly bottomed, the unemployment rate would be 10.1%.

4. The unemployment-population ratio, which looks at what portion of the working-age population has a job, is also lower today than it was at the start of the year and seems dead in the water:

As JPMorgan economist Michael Feroli argues:

The more comprehensive employment-to-population ratio ticked down to 58.3%; this measure is a mere 0.1% above its cycle trough, indicating that once one takes account of population growth there has been essentially no progress in repairing the labor market after the recent downturn.

5. Average hourly earnings were unchanged in the August jobs report, and are up just 1.7% over the past year. Not only does that match the slowest pace on record, but one you account for inflation, wages are flat to down.

6. Last year, the economy, adjusted for inflation, grew by 1.8%. Right now, it’s on track to do about the same this year. Another year of sub-normal growth, below 3%, means the output gap between where GDP is and where it should be (if the economy were growing merely at trend) continues to grow. If GDP growth in 2011 and 2012 were 3% and not a bit less than 2%, the economy would be $350 billion bigger in 2013 than where it is headed to be.

7. The American economy is less competitive than it was last year or the year before, according to the latest competitiveness report from the World Economic Forum: ”The United States continues the decline that began a few years ago, falling 2 more positions to take 7th place this year.”

The United States now ranks 7th in the WEF rankings out of 144 nations vs. 5th in 2011, 4th in 2010, and number 1 in 2008. Two growing problems: a) wasteful and ineffective government and b) crony capitalism.

8. The day of fiscal reckoning grows ever nearer as the national debt grows, and Washington fails to constrain out-of-control entitlement spending. Indeed, some economists think the debt is already slowing growth.

9. Growth is so slow right now that if anything goes wrong, we are likely to slip back into recession and problems 1-8 above get even worse.

America is not stuck in a sluggish or disappointing economic recovery. It’s in the middle of an economic emergency with more trouble on the way. And it’s time for Washington to start acting like it.

67 thoughts on “Does this look like an economy that’s moving forward? 9 reasons why it really doesn’t

  1. First, please see Tom Woods on the 1920-21 Great Depression and how we got out of it.

    Second, please read Economics in One Lesson as to why stimulus won’t work. I will give my spin to that lesson.

    Imagine a bakery with nice big glass windows. Imagine the baker has so much business he wants to expand and hire 2 new permanent workers.

    He takes a risk and raises his deductible to save money to buy the space in the building next to him. He has almost saved as much money as ne needs for the purchase.

    Vandals destory his windows. Now he has to replace them with the money he saved because of his deductible.

    His saved money stimulates that window guy one time. The window guy stimulates the glass guy with a little less of that money. Etc. In the end, all of the one time stimulus was equal to the savings of the baker.

    What was lost was the employment of 2 full time employees in the future bakery.

    Understanding that tells you why stimulus won’t and can’t work. It is why you can hire a teacher for 1 year and then have to let him go.

    The next valuable lesson is that wealth is created by production. It is destroyed by government because in general it is not used to create future continual production.

    A report in the 50′s said that for every $1 you give the Govt. to do something, only 25 cents goes there. The rest is overhead, waste, fraud, and corruption. Anyone seeing a lot of corruption lately? Solyndra, and a host of others?

    • I am a Republican, but electing Mitt Romney will be disastrous for the economy.

      Capitalism is driven by the simple supply and demand equation, if there is no demand any supply of things will not be sold. If things are not being sold, no more things will be produced. Demand must always be there first. People can have a want or demand for things, but if they do not have money or credit to buy these things, in economic terms, there is no demand.

      Mitt Romney will implement a budget which cuts taxes predominately for the “investor class” (aka the rich), while reducing government spending by cutting programs. Since money knows no nationality, most of the tax cut the rich receive will be invested in emerging market countries, where it will get the greatest return, or deposited in the secret bank accounts of “offshore tax havens”, or hidden away in gold. This is particularly true in difficult economic times. This money will not circulate through the American economy, create demand, and help the economy grow.

      Mitt says a tax cut will cause small business to expand, this is not true. I am considered a successful businessman. I have never made a business decision based on taxes. They never deterred me from expanding my business when I saw an opportunity to meet a demand by consumers. Taxes never took 100% of any additional income I made by expanding my business. They were just a cost of doing business like any other cost. They paid for services my business needed, such as policemen, firemen, and road maintenance. On the other hand, while I always appreciate lower taxes, they would not effect how I ran my business. If my taxes were lowered, but there was no additional demand by consumers, I would not expand my business. However, I would take a nice European vacation and see Paris or Rome, or buy a Mercedes-Benz rather then a Ford, or buy a second home on a sunny Caribbean island and open up a bank account there.

      Since Mitt promised not to increase the deficit, to pay for the tax cut, the budgets would be slashed for programs like: crop insurance for farmers, natural disaster relief, food inspection, interstate highway repair, school nutrition programs, unemployment insurance, student financial aid, food stamps, employment training, “Head Start”, etc. Cuts in federal grants to local and state governments would mean the layoff of policemen, firemen, teachers, and all government workers; needed permits and licenses would take longer to process. All these things and people consume “goods and services,” and produce the demand, which in turn will employ people to meet this demand. With the Romney budget cutbacks, demand is now lessened, so employers will also cut back and factories may close, jobs will be lost, and the unemployment rate will rise. Rather then the agonizingly slow but steady economic growth we presently have, the economy will begin to shrink, we will be in a “double dip” recession.

      • Wow. Republican, maybe. Conservative – maybe not so much.

        First para: very simple description not of capitalism, but of supply and demand. Capitalism encompassess much more than you described such as freedom in compliance with law to produce your goods or offer your services, the ability to tweak your item or service to meet the need/want of potential buyers, the foresite to see the upcoming need without being tied in to yesterday’s good or service. See: Solyandra, Chevy Volt, mandated insurance coverage.

        When government interferes with defining capitalism through preferential loans or gifts of tax money, it debases capitalism until it is no longer capitalism. Worse, government does not spend its own money earned through labor or wealth creation, but through forcible compliance, spending money not for the public good but for the political and social bias of the spenders.

        “…most of the tax cut the rich receive will be invested in emerging market countries, where it will get the greatest return, or deposited in the secret bank accounts of “offshore tax havens”, or hidden away in gold”. False argument. Proof. The statement is that money will be invested “where it will get the greatest return” is only partially true, as you yourself indicate in the followon paragrapgh what YOU would do with your money – spend it how you like. Which is what happens when people pay less taxes overall – they have their money and decide how to spend it as they like, as opposed to giving money via politicans where they don’t wish. See Solyandra, Chevy Volt, and mandated insurance coverage.

        Accross the board tax cuts do put more money into the economy, and do benefit small and start up businesses. I also was a businessman, performing a unique service in the banking industry. When my volume grew, all my expenses grew: my personel demands increased, my taxes increased, my insurance increased – not proportionately, but at an increased percentage until it overwhelmed my profits. Increased pricing for services caused a reduction in volume since smaller competitors could still work cheap. But, every busisness is different – don’t know what business you have, but it certainly wasn’t my business, the resturant business, or the mom-and-pop grocery business – all of whom usually have the same kind of issue I had.

        You nailed it in the last paragraph, but from the wrong position and wrong political bias: the problem is not tax collections, it is spending. Spending on those programs you list, along with the Solandra’s, Volt’s, and now health mandates. Some programs you mention may have a benefit – but I gurantee you that if you went line-by-line on the last budget (what – four years ago now?) or even the last stop gap spending bill, there would be huge amounts of money spent that are not neccessary for ‘establish justice, insure domestic tranquility,
        provide for the common defense, promote the general welfare and secure the blessings of liberty to ourselves and our posterity’.

        Check it out: 1 out of 2 people in the US pay no taxes, due not to tax loopholes, but because they fall under the income threshold set by governemt. And the Fed, State, and Local governments total out about 1 employee for each additional 6 tax payers that are not employed by government. Throw in government contractors and receipients of government largesse (Solandra, Chevy Volt, mandated health care), and it drops to 5 ish. What we need is less people taking money that comes from taxes, and more private sector tax contributors.

        I could go on, but to make it simple: Its not tax collection that is a proble (except that it is way to high for a free people), but, to paraphrase – it’s the spending, stupid.

        We have no control of government; they no longer serve the citizens. You know this, as a businessman, since the guy that controls the money is the guy thats really in charge.

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