All the Wrong Moves

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In his 2015 State of the Union address, President Obama asserted that his economic policies are working. "The economy is growing and creating jobs at the fastest pace since 1999," he declared. "The shadow of crisis has passed." Later, in March, a giddy Obama took credit for the recovery, saying that unemployment had fallen to 5.5% and that 60 consecutive months of job growth had created over 12 million jobs.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader. Under his stewardship, the economy remains chronically stagnant, despite profligate stimulus spending by the federal government (that has run up the public debt from $10 trillion to more than $18 trillion) and the Federal Reserve (that has run up its balance sheet from $850 billion to more than $4.5 trillion).

The bold policies of Obama’s first term (the Wall Street bailout, the Stimulus, Obamacare, Dodd-Frank financial reform, the Green Economy initiative, etc.) — praised by many, and often considered to be urgently needed — failed to revive the economy, even though the recession was already winding down, officially ending in June 2009. Ironically, all these efforts have stifled the recovery, except for the so-called 1% — the wealthiest Americans, whom Obama frequently excoriates; their share of the national income increased from 18%, when he took office, to 22% today. For everyone else, income share has fallen. They are not part of the Obama Recovery; for them, the recession has not passed.

The crisis has not passed. Nor has its shadow, which, almost seven years after Mr. Obama promised jobs, GDP growth, and a middle class revival, grows darker and broader.

These economic castaways — who have experienced flat, if not diminishing, economic improvement for more than seven years — have not been fooled by the falling (from 7.8%) unemployment rate, so often celebrated as success by the Obama administration. This rate, which measures only unemployed workers who have sought employment in the previous month, provides an incomplete and misleading picture of the US labor force. While it has dropped, so too has the labor participation rate. Today, 93 million working age adults do not participate in the labor force (have no job or have given up looking). Thirteen million of them have dropped out during Obama's tenure. Some of these are retirees, but not as many as one might think. More and more, the elderly have been forced to postpone retirement or return to the labor force. Since January 2000, the participation rate for the elderly has soared by 50%; for elderly women, by 69%.

And the equally celebrated jobs numbers are no less incomplete and misleading. The net jobs gained since Obama took office are barely six million, not 12 million, and most of them are low wage, low skill jobs. The only contribution to middle-class employment under the Obama administration has been the addition of about two million jobs in healthcare, education, and social services (aka the HES Complex). But these HES jobs were not generated by the natural forces of capitalism. According to former Reagan budget director David Stockman, they are a result of "the $1.5 trillion being spent on medical entitlements and another $1 trillion each on tax-subsidized employer health plans and tax-supported education at all levels, including the massive student grant and loan programs."

The April 2015 Bureau of Labor Statistics (BLS) “Employment Situation Summary” posted 109.2 million jobs, excluding HES Complex jobs. The corresponding number for December 2007 was 109.1 million, an increase of 0.1 million jobs. That is, not counting the taxpayer subsidized HES jobs, 7.5 years of economic recovery has produced a net gain of 0.1 million jobs.

All these efforts have stifled the recovery, except for the so-called 1%; their share of the national income increased from 18%, when Obama took office, to 22% today.

Stanford economist John B. Taylor, attributes the slowness of the recovery to policies (monetary, fiscal, and regulatory) that, over the past 10 years, have become significantly "more discretionary, more interventionist, and less predictable." This policy shift no doubt contributed to the financial meltdown that caused the recession of 2008, but Obama's overbearing, anti-growth intrusion has stifled economic activity and made true recovery impossible. Normally, economic recovery proceeds rapidly, even from recessions associated with financial crises. As Taylor notes, the average annual growth rate from such recessions (we have had a total of eight in US recorded business cycle history) is 6%; for the Obama Recovery, it is barely 2%.

An annual capital injection of, say, a trillion dollars (for plant and equipment, research, new hires, etc.) should be more than enough to extricate a $17 trillion economy from its doldrums (indeed, doing so at a GDP growth rate of almost 6%). But American businessmen are paralyzed with fear about Obama's boneheaded, clumsy meddling. Although their profits have risen 35% during Obama's reign, investment in new plant and equipment has risen by a meager 2.6%, as corporations keep to themselves a $1.8 trillion cash hoard. Banks are sitting on $2 trillion, afraid to lend at artificially low interest rates. Another $2.1 trillion in the profits of multinational companies is stashed overseas to avoid taxes. It's not the economy, stupid. It's federal government policy.

Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector.

In addition to the confusing burden of fiscal and monetary policy, American business must contend with the crippling effects of regulatory policy. There is no greater middle class job killer than the stultifying morass of federal regulations that in recent years has grown with explosive speed. In his annual review of federal regulation (“Ten Thousand Commandments”), Wayne Crews of the Competitive Enterprise Institute calculates the annual regulatory compliance cost as $1.88 trillion, an amount that exceeds the combined total of corporate and individual income tax revenues. Such an astounding cost significantly reduces American competitiveness, innovation, and job creation, and punishes US households, who, in Crews’ estimation, are assessed "$14,976 annually on average in regulatory hidden tax."

Incapable of grasping the connection between excessive regulation and chronic stagnation, no one has done more with regulatory authority to destroy middle class jobs than Obama (“Regulator without Peer”). During its eight-year reign, the Bush administration increased the annual regulatory compliance cost by $318 billion. In only six years, the Obama administration has increased it by $708 billion. According to a recent study by the National Association of Manufacturers, the annual cost for the average US firm to comply with federal regulations is $9,991 per employee; for small companies, the engine of job growth during economic recovery periods, it is $11,724. Railing against the loss of middle class manufacturing jobs, Democrats blame companies that have outsourced to countries with cheap labor. Republicans blame labor unions. Yet the average US manufacturing firm must pay $19,564 per employee to comply with regulations; small manufacturing firms pay $34,671. Our own government, not unions and cheap foreign labor, is ruining the US manufacturing sector, and its unbridled fiscal, monetary, and regulatory "discretion" is destroying the middle class.

Unfortunately for the middle class, Mr. Obama's next move is to revive the middle class. According to the Washington Post, after six years of failure, "he's giving it one more try." His new plan is designed to reverse the decline of a beleaguered middle class that has been shrinking (in income, wages, savings, home ownership, stock ownership, pension ownership, and business ownership) since the day he took office. Its implementation once posed a "conundrum" for Obama, thinks the Post: "How to pitch policies aimed at a middle-class turnaround that his policies thus far have failed to deliver."

Such riddles are child's play for the clever Obama, who nimbly dubbed his new policies "Middle Class Economics" and, without taking the trouble even to define the concept, declared that "Middle-class economics works." He did, however, say what it is about: "lowering the taxes for working families by thousands of dollars, putting money back into their pockets so that they can have a little bit of cushion in their lives." Finally, the turnaround would be underway.

The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

But a February Tax Policy Center report indicated otherwise. According to the New York Times, the Center’s analysis "found the president’s plan produced an average tax cut of just $12 for families in the middle quintile." The Obama Treasury Department shot back, insisting that "the average middle-income family would get a tax cut of about $150 under the president’s plan." No doubt this is intended to dispel any fear that the forgotten, shrinking middle class, which has lost thousands in annual income and tens of thousands in net worth over the last six years, will think it won’t get a big enough cushion.

American businessmen and entrepreneurs, intimidated and confused by fiscal and monetary policy, hoard trillions that could be injected into the American economy to create millions of good jobs. Oppressive regulations with dubious benefits continue piling up, diverting capital from, and stifling, industries such as manufacturing and energy — stalwarts of solid middle class occupations. Jobless working age adults also pile up, as fast as the federal government can borrow more money, or have it printed, creating a labor surplus that depresses the wages of those lucky enough to have a job. The 8.3 million jobs lost during the recession were mostly middle-class jobs. They have yet to return.

This is the Obama Recovery: a timid, sputtering burger-flipper economy, incapable of generating meaningful growth and high-paying jobs. The jobs that are being created are low-wage, low-skill jobs, appearing in monthly quantities large enough to fool Obama into thinking the crisis has passed. He flaunts this “growth” as evidence of a recovery, for which he then takes credit. To the low-wage cohort that is experiencing unprecedented growth under his policies, he offers an increase in the minimum wage. To the middle class, whose jobs are being replaced by the low wage jobs his policies generate, he offers a $150 tax break, calls it Middle Class economics, and pats himself on the back. He couldn’t even get the PR move right.




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Continuing Obamalaise

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A spate of reports just out shows the continuing economic malaise created by Obama’s benighted administration, a phenomenon we call Obamalaise. Obamalaise set in early in the administration, and it has continued, despite what the administration and lickspittles in the media hail as the “miraculous recovery.”

The first item, from the Wall Street Journal, notes that the most recent jobs report was very disappointing: only 162,000 jobs were added in July, far fewer than the 183,000 that had been predicted by various economists. Worse, prior months’ figures were revised downward. Worse yet, average hours worked and average hourly earnings both dropped.

While the unemployment rate did fall from 7.6% to 7.4%, the supposed improvement was due in great measure to more people giving up looking for work.

The only reason the stock market didn’t react dramatically is that the weak report made it obvious that the Fed will continue its aggressive bond buying, which “the Bernank” had earlier suggested might be reduced.

What we have now is a far cry from the 5% unemployment rate that the administration promised us, back in 2009, if we just passed its grotesquely bloated $800 billion “stimulus” bill, with all its payoffs for Obama cronies and supporters. Moreover — as James Pethokoukis notes — we have never come even close to hitting the administration’s projected unemployment rate. For example, Obama promised that the rate would never exceed 8%, but he was off by one-fourth: it hit 10% by the end of 2009.

The real rate of unemployment is upwards of 10%, when you count in the people who want a job but have ceased looking for one.

In that year, the administration also projected that the stimulus would result in over 4% GDP growth in 2011, 2012, and 2013. In reality, growth has been happening at only half that rate, and it has dropped even lower recently.

As I argued in these pages long ago, it is for this sort of governmental fraud that we should extend Sarbanes-Oxley to cover government, not just business. If a program is sold on certain projections by an administration, and the projections prove false, the president, vice president, relevant cabinet members, and the senators and congresspersons who voted for the scheme should do jail time after their terms.

Pethokoukis observes that the real rate of unemployment is upwards of 10%, when you count in the people who have dropped out of the labor force. More than six and a half million Americans want a job but have ceased looking for one. If you count the underemployed, the real rate is above 14%.

Speaking of that, another report points out that of the 953,000 jobs created this year, 731,000 (or 77%) are part-time jobs. The main cause is the impending imposition of Obamacare, which requires employers with 50 or more “full-time” employees — now defined down to mean people working 30 or more hours a week — to purchase costly insurance for all of them. Employers are doing the rational thing: turning full-timers into part-timers. As Tyler Durden puts it, we are being converted to a part-time worker society.

Another recent WSJ piece adds yet more somber news. Over half the new jobs recently created have been in the low-wage sectors of the economy, especially the restaurant and retail industries.

The jobs news is especially ironic in one way: Obamalaise is going hardest on one of the groups that were most enthusiastic about voting for Obama: young people. Unemployment among 18–29 year olds stands at 16.1%. Again, the figure doesn’t include people who have only part-time work but want to work full-time. Only 43.6% of young people now have full-time work. And black teen unemployment has now hit an astounding 41.6%. This is up from 36% a year ago.

One last report puts the present youth predicament with tragic clarity. It turns out that 21.6 million Americans aged 18 to 31 now live with their parents, the highest number recorded in 40 years. This is 36% of all so-called millennials.

Obama built this. He did it with Obamacare. He did it with overregulation, and the leftists that he inserted into regulatory bodies. He did it with tax increases. He did it with his Green jihad on fossil fuels, led by like-minded people at the Department of Energy, the Department of the Interior, and the EPA — the “Employment Pulverizing Agency.” He did it with massive taxpayer-backed loans and subsidies of Green energy companies that employed few people (before going broke) but funneled untold millions to political supporters.

Some are predicting that with continued Fed support, the economy’s growth will accelerate, and Obama will finish his administration with unemployment low again — meaning in the 5% range.

Perhaps. But, there is still a business cycle, and if in the next two or three years we have another recession, the workers of this country will be hit very hard, since the “recovery” has been so very anemic. To put it in another way, if this “miracle recovery” involves a record level of dependency on food stamps, a record number of young people forced to live at home, a record percentage of people having left the work force, more and more people forced into part-time work, and a national debt that will soon stand at $20 trillion — what will the next recession look like?




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