This past Thursday, September 3rd, Joe Biden claimed Obama’s $787 billion stimulus plan is not only working, but working better than expected. Now it’s easy to dismiss the words of the gaffe-prone vice president when he speaks off the cuff. However, Biden made this claim in prepared remarks at The Brookings Institution and thus his claim can't merely be dismissed as another of his "rhetorical flourishes". Therefore we have to assume that the entire Obama Administration believes that the stimulus plan is working better than expected.
However, as we’ve come to expect, claims made by the Obama Administration are usually at variance with the facts. When selling the stimulus plan last winter, the Obama team famously claimed their stimulus plan would keep unemployment from rising above 8%. Of course that figure has been exceeded now for months as illustrated by the chart nearby.
Yesterday, the day after Biden’s speech, the Labor Department’s Bureau of Labor Statistics (BLS) released their August unemployment data. Sudeep Reddy summarized the BLS data in an article in the Wall Street Journal:
Employers cut jobs in August at the slowest pace in a year, but a jump in the unemployment rate to a 26-year high of 9.7% reinforced worries that a weak labor market could weigh on consumer spending and the vigor of the economic recovery.
Teenage unemployment hit 25.5%, the highest since the government began keeping records in 1948. Most economists expect the rate to top 10% in coming months and stay over 9% through 2010.
Oops. The BLS report would certainly suggest to an objective observer that Mr. Biden’s claim that the stimulus is working "better than expected" is nonsense. By their own measure, the stimulus has been an unmitigated failure. Larry Kudlow, who vigorously defended Governor Palin yesterday, has an interesting article in today’s Real Clear Markets. In his piece, Kudlow questions Mr. Biden's claims regarding the economy in general and unemployment in particular:
Veep Joe Biden is out there saying the Obama stimulus plan has saved or created 150,000 jobs in the administration's first 100 days and another 600,000 in its second 100 days. But he sure isn't talking about small-business jobs.
In fact, it's hard to know what he's talking about. Uncle Sam has borrowed $388 billion in the second quarter and is scheduled to borrow $406 billion in the third quarter and nearly $500 billion in the fourth. In order to provide $152 billion in so-called fiscal stimulus, the government is draining close to $800 billion from the private-sector savings supply -- $800 billion that will not be invested in new-business enterprises, including small businesses.
Borrowing from Peter to redistribute to Paul is not fiscal stimulus. It's a fiscal depressant.
Mr. Kudlow's point is that in order for the government to spend money to "stimulate" the economy, money that would have been spent by the far more efficient private sector won't be. In other words, as Mr. Kudlow says, borrowing from Peter to redistribute to Paul can't result in any net job creation. In fact, it results in fewer jobs due to the inefficiency and temporary nature of government "make work" jobs relative to permanent private sector jobs. This is, of course, another application of 19th century French economist Frederic Bastiat's "broken glass fallacy", discussed at length in an earlier post.
Mr. Kudlow also discusses the fact that Obama's disastrous economic plans weigh heavily on the minds of entreprenuers as they contemplate growing their businesses and expanding their payrolls:
Then there are all the tax and regulatory threats related to health-care and energy reform. Until Mr. Obama retreats from his plan for a government takeover of the health-care sector, and a cap-and-trade program that will cripple the energy sector, the cost of hiring the new job will continue to rise.
The threat of higher payroll taxes and energy costs is more than enough to deter new hiring. Taxes on upper-end investors are going to rise, too, and there may be a health-care surtax on top of that. And don't forget that small businesses pay the top personal tax rate, which is going up. Oh, and how about the recent minimum-wage hike? Yet another business cost.
So while the government doles out money for transfer payments and one-time temporary tax credits, the ensuing increase in the private-sector tax-and-financing burden becomes a complete deterrent to new job creation, as well as capital formation.
All of these job killing plans emanating from Obama and his army of "czars", most of whom have never held an actual private sector job, will guarantee that there will be no significant improvement in unemployment for the foreseeable future. Until and unless Obama comes to the realization that rational businesses won’t increase their payrolls unless there is the reasonable expectation that they will be profitable, the labor market will continue to languish.
In addition to the 26-year high 9.7% overall unemployment rate, another startling bit of information in yesterday’s BLS release was the teenage unemployment rate. The teenage unemployment rate is that rate of unemployment applicable to those aged 16-19 (technically, one does not officially enter the labor force until age 16). This is the demographic in the labor force most likely to earn the minimum wage. Since I just discussed this extensively in a post last Sunday, I will simply recommend readers to go back and read that post.
In a nutshell, the minimum wage has risen from $5.15 to $7.25 per hour in a series of three steps since 2007. That represents a 41% increase in the price businesses need to pay for unskilled labor. Given this absurd increase, can there be any doubt as to why businesses are hiring fewer teens than they did in the past and, consequently, that the unemployment rate for teens is the highest ever recorded? Incredibly, Obama wants to raise the minimum wage even higher…to $9.50 per hour.
When we hear Joe Biden, speaking for the Obama Administration, claim the stimulus is working better than expected, we should all be truly alarmed at the abysmally low level of competence and economic literacy which characterizes Obama and his economic team. Maybe in the Obama Administration’s fantasy world the stimulus is working, but, in the real world, American workers are not.