THE EMPLOYMENT SITUATION -- AUGUST 2009
Nonfarm payroll employment continued to decline in August (-216,000), and the unemployment rate rose to 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Although job losses continued in many of the major industry sectors in August, the declines have moderated in recent
months.
Household Survey Data
In August, the number of unemployed persons increased by 466,000 to 14.9 million, and the unemployment rate rose by 0.3 percentage point to 9.7 percent.
Source: Bureau of Labor Statistics, 09/04/09 (Emphasis added throughout this article)
The current unemployment rate of 9.7 percent is the highest in 26 years.
The Obama stimulus package was supposed to create 4.1 million new jobs by the end of 2010. [1] It does not appear to be working. The stimulus package of $800 billion is largely a spending bill for liberal projects that can do little to stimulate the economy. It was presented as an emergency measure and passed with a minimum of debate and scrutiny.
Gallup Chief Economist Dennis Jacobe reports the following:
“PRINCETON, NJ -- Gallup Daily economic data aggregated on a monthly basis show that job creation in August is just not taking place in the U.S. economy. While Gallup data for the month also show a slight moderation in job loss, this is not sufficient to take up the slack for a 35% decline in the rate of job creation compared to a year ago. And, while confidence in the future direction of the U.S. economy is at its highest level in 20 months, Gallup data also show a continued delinking of consumer spending -- which is down 33% from a year ago.” [2]
Why doesn’t all this spending create more jobs than are being lost? It simply isn’t stimulating the economy because to stimulate the economy, it is necessary to encourage private investment. Private investment involves taking risks. The government spending involved in the infrastructure projects can benefit some workers and some companies, but provides no encouragement to other companies. Nothing suggests that the other companies’ investments and hiring would pay off, because the economy is running such a deficit that government debt will crowd out investors. When an investor buys government debt, he/she cannot invest that money in private companies.
Companies outside the construction or other directly stimulus-affected industries see little incentive to expand and hire. They know tax increases are coming as the Bush tax cuts expire. These increases are substantial. There is little the government is doing to encourage lending. If businesses can’t borrow, they generally can’t expand, and, as mentioned they have little incentive to expand anyway. Another serious hindrance to economic growth is the Administration’s determination to pass some kind of government health care and cap and trade. Because the proposals are so intrusive and all-encompassing, many businesses would consider it the height of imprudence to make big changes without knowing what is to become of these proposals. And if they pass, businesses may very well hunker down even more, and, if they can, seek opportunities offshore. The prospect of crippling taxes and regulations slows everything down, except the specific items directed by the stimulus bill. Uncertainty about government policy never helps, especially these potentially big-ticket items.
The Administration must take responsibility for the economy. It’s their stimulus. It isn’t working and can’t work due to the laws of economics. Combined with their other big efforts (if they are enacted), we can expect an even larger negative impact on the economy, resulting in more misery and suffering for American families. The best thing government can do is back off, get out of the way, and free the markets to work. The stimulus and the other proposals mentioned will do more harm than good to the economy.
As the Heritage Foundation’s “Morning Bell” article puts it,
“The federal deficit is expected to approach $2 trillion this year, and to remain well above $1 trillion for many years to come, doubling the national debt in just five years. This situation is not sustainable, but businesses can only guess how the federal government will restore order to its fiscal house, knowing full well that successful businesses make an attractive tax target. In the face of such a threatening environment, it is not surprising that job creation has fallen since President Obama signed the stimulus.” [3]
[1] The Heritage Foundation, “Morning Bell: President Obama’s Failed Stimulus,” 09/04/09, appearing at http://www.facebook.com/note.php?note_id=148525515907&ref=nf (The Heritage Foundation Notes)
[2] Dennis Jacobe, “Gallup Economic Monthly: Job Creation Not Happening,” 09/03/09 at http://www.gallup.com/poll/122696/Gallup-Economic-Monthly-Job-Creation-Not-Happening.aspx
[3] The Heritage Foundation, see [1].
Illustration: Unemployment rates in the United States (1950 - 2005).
• Background colors and dotted lines show the terms of U.S. presidents and their political party affiliation, to give more historical context.
• Data source: Bureau of Labor Statistics
• Chart created by User: Kmf164 on May 10, 2006.
• License at http://creativecommons.org/licenses/by-sa/2.5/
• Illustration found at http://commons.wikimedia.org/wiki/File:Us_unemployment_rates_1950_2005.svg
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