Tag: jobs

One Year Later, Another Look at Obamanomics vs. Reaganomics

On this day last year, I posted two charts that I developed using the Minneapolis Federal Reserve Bank’s interactive website.

Those two charts showed that the current recovery was very weak compared to the boom of the early 1980s.

But perhaps that was an unfair comparison. Maybe the Reagan recovery started strong and then hit a wall. Or maybe the Obama recovery was the economic equivalent of a late bloomer.

So let’s look at the same charts, but add an extra year of data. Does it make a difference?

Meh… not so much.

Let’s start with the GDP data. The comparison is striking. Under Reagan’s policies, the economy skyrocketed.  Heck, the chart prepared by the Minneapolis Fed doesn’t even go high enough to show how well the economy performed during the 1980s.

Under Obama’s policies, by contrast, we’ve just barely gotten back to where we were when the recession began. Unlike past recessions, we haven’t enjoyed a strong bounce. And this means we haven’t recovered the output that was lost during the downturn.

This is a damning indictment of Obamanomics

Indeed, I made this point several months ago when analyzing some work by Nobel laureate Robert Lucas. And it’s been highlighted more recently by James Pethokoukis of the American Enterprise Institute and the news pages of the Wall Street Journal.

Unfortunately, the jobs chart is probably even more discouraging. As you can see, employment is still far below where it started.

This is in stark contrast to the jobs boom during the Reagan years.

So what does this mean? How do we measure the human cost of the foregone growth and jobs that haven’t been created?

Writing in today’s Wall Street Journal, former Senator Phil Gramm and budgetary expert Mike Solon compare the current recovery to the post-war average as well as to what happened under Reagan.

If in this “recovery” our economy had grown and generated jobs at the average rate achieved following the 10 previous postwar recessions, GDP per person would be $4,528 higher and 13.7 million more Americans would be working today. …President Ronald Reagan’s policies ignited a recovery so powerful that if it were being repeated today, real per capita GDP would be $5,694 higher than it is now—an extra $22,776 for a family of four. Some 16.9 million more Americans would have jobs.

By the way, the Gramm-Solon column also addresses the argument that this recovery is anemic because the downturn was caused by a financial crisis. That’s certainly a reasonable argument, but they point out that Reagan had to deal with the damage caused by high inflation, which certainly wreaked havoc with parts of the financial system. They also compare today’s weak recovery to the boom that followed the financial crisis of 1907.

But I want to make a different point. As I’ve written before, Obama is not responsible for the current downturn. Yes, he was a Senator and he was part of the bipartisan consensus for easy money, Fannie/Freddie subsidies, bailout-fueled moral hazard, and a playing field tilted in favor of debt, but his share of the blame wouldn’t even merit an asterisk.

My problem with Obama is that he hasn’t fixed any of the problems. Instead, he has kept in place all of the bad policies - and in some cases made them worse. Indeed, I challenge anyone to identify a meaningful difference between the economic policy of Obama and the economic policy of Bush.

  • Bush increased government spending. Obama has been increasing government spending.
  • Bush adopted Keynesian “stimulus” policies. Obama adopted Keynesian “stimulus” policies.
  • Bush bailed out politically connected companies. Obama has been bailing out politically connected companies.
  • Bush supported the Fed’s easy-money policy. Obama has been supporting the Fed’s easy-money policy.
  • Bush created a new health care entitlement. Obama created a new health care entitlement.
  • Bush imposed costly new regulations on the financial sector. Obama imposed costly new regulations on the financial sector.

I could continue, but you probably get the  point. On economic issues, the only real difference is that Bush cut taxes and Obama is in favor of higher taxes. Though even that difference is somewhat overblown since Obama’s tax policies - up to this point - haven’t had a big impact on the overall tax burden (though that could change if his plans for higher tax rates ever go into effect).

This is why I always tell people not to pay attention to party labels. Bigger government doesn’t work, regardless of whether a politician is a Republican or Democrat. The problem isn’t Obamanomics, it’s Bushobamanomics. But since that’s a bit awkward, let’s just call it statism.

Debate on Government Stimulus

I am debating the need for more government spending to goose the economy and create jobs over at PolicyMic.com. I argue that we’ve had enough government “stimulation” (see here). My opponent argues that the federal government hasn’t spent enough money (see here). Readers will decide the “winner” and can add their own two cents.

The Pentagon and Jobs

Desperate to fend off cuts in military spending, the defenders of the status quo are claiming that potential reductions included in the debt ceiling deal’s sequestration provision would result in huge job losses. In September, Leon Panetta suggested that cuts of up to $1 trillion would increase the nation’s unemployment rate by a full percentage point, and put up to 1.5 million people out of work.

Early last week, the Aerospace Industry of America (AIA) jumped in claiming that “more than one million American jobs could be lost as a result of defense budget cuts if the deficit reduction select committee fails to reach agreement on alternative balanced budget solutions….”

The media picked up on the AIA’s press release, but their documentation was flimsy, at best: AIA offered up a five-page summary of the research conducted by George Mason University professor Stephen S. Fuller, and a video of the press conference in which Fuller, AIA CEO Marion Blakey, and Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers, railed against the “devastating impact” (Blakey) of military spending cuts and the “economic turmoil” (Buffenbarger) that would result.

Yesterday, nearly seven weeks after the secretary issued his dire warning, Panetta’s office released the findings of a report from Interindustry Forecasting at the University of Maryland (INFORUM) to buttress their claims.

By then, the counteroffensive was already in full swing. Bill Hartung has one of the better assessments that I’ve seen because it includes Bill’s insight into the inner workings of the military-industrial complex, blended with his characteristic wit. The bottom line, he explains, is that the contractors are doing just fine, and they will be in the future. The claims of massive job losses are just the latest in a string of scaremongering tactics aimed at allowing them to hold onto their loot.

Other opinion writers and columnists have fixed on aspects of the jobs argument that suit their broader purpose. Paul Krugman pushed a predictably Keynesian line (all government spending is good, but non-military spending is better). Others pointed to the hypocrisy of the situational Keynesians, people who generally oppose government spending when it buys road and bridges, but who embrace military spending for its supposedly magical stimulative effects. These are the “believers in the military spending fairy,” explains Dean Baker at the Center for Economic Policy Research.

None of this debate is new. In the late 1940s, Keynesians assailed Harry Truman for questioning whether excessive military spending might drag down the economy. Nonsense, they said. We can afford much more spending, and it will have wonderful stimulative effects, to boot. Many of these same Keynesians claimed that Dwight Eisenhower’s fiscal restraint was forcing the country to fight the Soviets with one arm tied behind its back. (Truman eventually relented, which has earned him the undying respect and admiration of liberal and conservative hawks alike; Ike’s fiscal conservatism, by contrast, has generated only scorn from the same group).

Ronald Reagan was no Keynesian, but he seemed to agree with them when it came to military spending. “Defense is not a budget issue,” he said, “You spend what you need.” And yet, not even the Gipper spent as much as we do today on our military. We are spending more, in inflation-adjusted terms, than at any time since World War II. More than during Korea, more than during Vietnam, and more, even, than in the early 1980s. It is likely that total military spending will be lower in 2012 than 2011, but most of these savings will come from the troop reductions in Iraq and Afghanistan. The Pentagon’s base budget may yet emerge unscathed.

Military spending advocates routinely skirt around such inconvenient facts. Looking at absolute spending, even if adjusted for inflation, they say, obscures the reality that spending as a share of GDP is relatively modest, in historical terms. But the hawks can’t have it both ways: they can’t claim on the one hand that military spending constitutes a very small share of the total economy (and therefore we can spend as much, or more, with ease), and at the same time wail about the massive job losses that would result from cuts in military spending.

In the end, it all comes back to opportunity costs. Unless one believes that every dollar saved from the Pentagon’s budget will be thrown into a huge government money hole in the New Mexico desert, the reality is that at least some–and likely most–of the taxpayers’ dollars that are currently dedicated to the military could be better employed elsewhere. My preference would be for each of us to keep a bit more of the money that we earn, money that we will then choose to spend as we see fit. This new private spending would more than offset the cuts in government spending, given the government’s inherent inefficiencies, dead-weight losses, etc. Yes, some workers might lose jobs in the near term, but, as Gordon Adams notes, the economy has recovered from a number of previous military build downs, which were deeper and faster than those envisioned today.

Finally, we should embrace the discipline that even modest fiscal constraints can have on our grand strategy. The most “draconian” cuts envisioned under sequestration would take the military’s budget back to 2007 levels–hardly a “lean” year for the defense industry–but policymakers are likely to pay more attention to how they allocate resources if they perceive that they have less of them.

During his last few months as the Chairman of the Joint Chiefs of Staff, Adm. Mike Mullen explained that the Pentagon had forgotten how to prioritize during more than a decade of ever-rising budgets. The White House and others in the national security community have as well. I’m confident that shrinking budgets will infuse a measure of prudence and restraint that is long overdue.

Cross-posted from the Skeptics at the National Interest.

Yes, ObamaCare Will Eliminate Some 800,000 Jobs

From my article “ObamaCare–The Way of the Dodo” in Virtual Mentor, a journal of the American Medical Association:

The CBO projects the law will eliminate an estimated 800,000 jobs. The fashionable retort is to note that this effect “primarily comes from workers who choose not to work because they no longer have to work at jobs just for the health insurance.” That defense fails for two reasons. First, a “job” is when Smith and Jones exchange labor for money. It doesn’t matter whether Jones withdraws the money or Smith withdraws the labor. Either act eliminates a job. Second, it’s an odd defense of a law to say it encourages people to consume without producing.

Emphasis added; citations embedded as hyperlinks.

Put differently: why should we care only about someone not getting a paycheck and not at all about a job left undone?

Update: When he’s talking about something other than ObamaCare, President Obama himself acknowledges that suppressing the labor supply is as harmful as suppressing demand. Obama laments how government policies “cost[] us hundreds of billions of dollars in wages that will not be earned, jobs that will not be done, and purchases that will not be made.”

Obama-Reid ‘Jobs’ Bill Soaked in Greece

A stated aim of the Obama-Reid jobs bill is to preserve the “competitive edge” that our “world-class” education system purportedly gives us. In an attempt to do that it would throw tens of billions of extra taxpayer dollars at public school employees.

A few problems with that: we’re not educationally world-class; we don’t have a competitive edge in k-12 education; and this bill would actually push the U.S. economy closer to a Greek-style economic disaster.

First, the belief that increasing public school employment helps students learn is demonstrably false. Over the past forty years, public school employment has grown 10 times faster than enrollment. If more teachers union jobs were going to boost student achievement, we’d have seen it by now. We haven’t. Achievement at the end of high school has been flat in reading and math and has declined in science over this period. I documented these facts the last time Democrats decided to stimulate their teachers union base, just one year and $10 billion ago.

So what has our public school hiring binge done for us? Since 1980, it has raised the cost of sending a child from Kindergarten through the 12th grade by $75,000 – doubling it to around $150,000, in 2009 dollars.

And what would going back to the staff-to-student ratio of 1980 do? It would save taxpayers over $140 billion annually.

But don’t those school employees need jobs? Of course they do. But we can’t afford to keep paying for millions of phony-baloney state jobs that have no impact on student learning. We need these men and women working in the productive sector of the economy – the free enterprise sector – so that they contribute to economic growth instead of being a fiscal anchor that drags us ever closer to the bottom of the Aegean. Freeing up the $140 billion currently squandered by the state schools would provide the resources to create those productive private sector jobs.

Continuing to tax the American people to sustain or even expand the current bloat, as Obama and Reid want to do, cripples our economic growth prospects by warehousing millions of potentially productive workers in unproductive jobs. The longer we do that, the slimmer our chances of economic recovery become. This Obama-Reid bill is such an incredibly bad idea, so obviously bad, that it is hard to imagine any remotely well-informed policymaker supporting it… unless, of course, they think the short term good will of public school employee unions is more important than the long-term prosperity of the American people.

Government and Job Creation: Help or Hindrance?

I recently posted four charts eviscerating Obama’s record on jobs.

My Cato colleagues, Caleb Brown and Austin Bragg, have a good complement to those charts. They’ve put together a short video looking at how government spending and regulation undermine job creation.

Caleb says he will be doing more excellent videos like this, which is very encouraging since there is so much more ground to cover – particularly when trying to educate people in Washington.

One thing he should explain is that jobs don’t exist without profits. As I explained in a New York Post column last year, employers “only create jobs when they think that the total revenue generated by new workers will exceed the total cost of employing those workers.”

This seems like an elementary observation, but it’s one that most politicians don’t seem to understand. Or don’t care to understand.

That certainly seems to be the case at 1600 Pennsylvania Avenue. The president will speak tonight and supposedly will propose a $300 billion plan. He’ll claim, of course, that this new “stimulus” package will boost growth.

But a look at the various components that reportedly will be in his plan doesn’t create a sense of optimism. Especially since it appears that he’s mostly recycling proposals that already have failed at least once.

Maybe the President should copy the policies of a former resident of the White House, who also had to deal with a deep downturn, but managed to produce dramatically better results.

Grading the Likely Components of Obama’s New Stimulus Plan

President Obama will be unveiling another “jobs plan” tomorrow night, though Democrats are being careful not to call it stimulus after the failure of the $800 billion package from 2008.

But just as a rose by any other name would smell as sweet, bigger government is not good for the economy, regardless of how it is characterized.

Here are the most likely provisions for Obama’s new stimulus, as reported by the Associated Press, along with a grade reflecting whether the proposals will be effective.

  • Payroll tax relief - C - This proposal won’t do any harm, but it probably won’t have much positive impact because people generally don’t make permanent decisions on creating jobs and expanding output on the basis of temporary tax cuts.

    But, to be fair, if the tax cut keeps getting extended, people may begin to view it as a semi-permanent part of the tax code, which would make it a bit more potent.

  • Extended unemployment benefits - F - I agree with Paul Krugman and Larry Summers, both of whom have written that you extend joblessness when you pay people to be unemployed for longer and longer periods of time.

    And I recently produced a chart showing how long-term unemployment has jumped sharply since Obama entered the White House, a dismal result that almost surely is related to the numerous expansions of unemployment benefits.

  • New-hire tax credit - D - This proposal actually would subsidize employment rather than joblessness, so it’s an improvement over extending unemployment benefits, but it’s unclear how the IRS can effectively enforce such a scheme.

    This approach was tried already, as part of HIRE Act of 2010 (which was infamous for the FATCA provision), and it obviously didn’t generate great results. Simply stated, giving special tax breaks to companies with high employee turnover is not an effective approach.

  • School construction subsidies - F - The federal government should have no role in education. Period.

    That being said, the economic flaw of school construction spending-cum-stimulus is that government spending must be financed with either taxes or borrowing, both of which divert resources from the productive sector of the economy. Simply stated, Keynesian spending does not work.

  • Temporary expensing of business investment - B - The current tax code penalizes new business investment by forcing companies to “depreciate” those costs rather than “expense” them, thus forcing companies to artificially overstate profits. Temporary expensing mitigates this foolish bias.

    But temporary tax cuts, as noted above, are unlikely to have a permanent impact on growth. Temporary expensing, however, will encourage companies to accelerate planned investment to take advantage of better tax treatment, so it can lead to more short-term economic activity (albeit perhaps by reducing economic activity in future years).

The only good news - at least relatively speaking - is that Obama supposedly will propose to misallocate $300 billion of resources, significantly less than what was squandered as part of the 2009 faux stimulus.

But the bad news is that the AP story also notes that “Obama has said he intends to propose long-term deficit reduction measures to cover the up-front costs of his jobs plan.” Translated into English, that means the gimmicks and new spending in the plan proposed tomorrow night will lead to proposed tax hikes at some point in the future.

More taxes and more spending. Hey, it worked for the Greeks, right?