In a post on Wednesday, I discussed Obama's dismal record on unemployment and Arthur Laffer's prediction that the economy is headed for a rare double dip recession. The following day, Thursday, the markets were jolted by more bad economic news:
Reporting from Washington and Los Angeles — A fresh batch of weak economic news Thursday heightened concerns about the staying power of the fledgling recovery, with more uninspiring news expected Friday when the government reports on the [June] job market.
Sure enough, when the June jobs data was released Friday morning by the
Bureau of Labor Statistics (BLS), the news was "uninspiring". The worse than expected news in the labor market was followed later in the morning by more gloomy news from the
manufacturing sector:
Factory orders fell 1.4 percent May, nearly triple of what economists had expected.
The report is another blow to the recovery as early signs had indicated that manufacturing was leading this recovery even as the consumer remained sluggish.
But the big news of the day was the continued sluggishness in the labor market, with the economy showing a net loss of 125,000 jobs in May. A large loss in public sector jobs was expected due to the termination of census workers, but the hope was that this would be more than offset by private sector hiring. The fact that it wasn't is illustrative of the fragility of the economic recovery, via
Don Lee at the LA Times:
The decrease in Census Bureau staffing was expected, but most analysts were looking for stronger job growth in the private sector, which has yet to generate momentum and looms as a major threat to the overall economic recovery. In May, private employers added just 33,000 jobs. What's more, the average hours worked in manufacturing and other industries in June declined, as did average hourly earnings.
Despite this dismal news, Obama is still utterly clueless. While allowing that the economy is not growing fast enough, he still managed to make the following sage pronouncement yesterday, via
Ed Morrissey:
“Make no mistake, we are headed in the right direction”
This rather naive statement, presumably, is based on the fact that the official
BLS unemployment rate fell from 9.7% to an 11-month low of 9.5%. How, you ask, can the unemployment rate fall when the economy lost $125,000 jobs? The unemployment rate is calculated by dividing the number of unemployed by the number in the labor force. The number of unemployed rose by 125,000 but, and this is key, the number in the labor force fell by an alarming
652,000. This is not sufficient cause to break out the champagne as Obama seems to imply. The bulk of those leaving the labor force are what economists call discouraged workers...those who have essentially given up looking for work for the time being due to bleak prospects for employment.
The recent spate of depressing economic news should not come as a surprise to anyone with an elemental degree of economic literacy (which, of course, precludes Obama). President Obama and his economic team are doing practically everything wrong. Obama has made a habit of blaming all his problems on Bush, claiming he "inherited" the mess we find ourselves in. To be sure, Obama inherited a deep recession, but the statute of limitations on blaming Bush for the current mess expired when he enacted policies such as the stimulus and ObamaCare which are as harmful to the economy as they are unaffordable. Obama owns the economy now. The economy began its current recovery (call it the Obama Recovery) in the third quarter of 2009.
Real GDP grew at 2.2% in that third quarter, followed by 5.8% in the 4th quarter, and 2.7% in the first quarter of 2010 (Preliminary 2nd quarter data will be released on July 30). The 5.8% rate in the third quarter may look impressive but that was mostly due to a pronounced
inventory effect. More on that
here.
As a comparison, I thought it might be useful to look at real GDP growth during the first three quarters of the
Reagan Recovery. During the first three quarters of that recovery, the economy grew at
5.1%, 9.3%, and 8.1% respectively. The numbers speak for themselves. No doubt Obama would protest that he inherited a much worse economy than Reagan did. By any objective measure, that's not true. The following table, produced by
Mark Perry during the bottom of last year's recession, is worth a thousand words:
I have no doubt Obama's teleprompter will continue to tell him that he inherited a worse economy than Reagan, but the facts indicate otherwise. What this data tell us is that a strong economic recovery is possible from even the deepest of recessions if we follow the correct economic policies. Reagan proved this in the early 1980s. This is the reason Governor Palin has consistently and repeatedly discussed the need to follow the blueprint Reagan left us. The commonsense, pro-growth policies Reagan followed work every time they're tried, as she has indicated in interviews, op-eds, speeches, and Facebook Notes, including
this one:
…let’s learn from history and follow the example of the man who occupied the White House in 1983 and was able to transform an even worse recession than the one we’re currently experiencing into the largest peacetime economic expansion in American history.
When you realize the magnitude of President Reagan’s achievements, there is absolutely no reason why anyone would ignore his “demonstrably good” example. If you want real job growth, cut taxes – including capital gains taxes and small business payroll taxes – and slay the death tax once and for all. If you want to stimulate the economy and help poor and middle class families, cut payroll taxes so that more Americans can keep and invest more of what they earn.
If you want lasting economic expansion and prosperity, get the federal government’s budget under control. Instead of more pork-laden stimulus plans, let the free market correct itself. That’s what Reagan did, and history proves it worked.
Instead of utilizing these tried and true policies, Obama is doing quite the opposite. He claims to be interested in creating jobs yet does everything he can to discourage businesses from creating them. He and his fellow travelers in Washington claim to believe that a
massive new energy tax will somehow create more jobs than it will destroy. As recently as yesterday
John Kerry, whose sole claim to fame is an ability to marry wealthy heiresses, was still making this ridiculous claim (I also heard, incidentally, that Kerry spent some time in Vietnam).
Obama is planning on allowing the Bush tax cuts to expire at the end of this year for the most productive participants in the economy. The
onerous increase in marginal tax rates awaiting these people, many of whom own businesses, are a powerful disincentive for business expansion and job growth. Obama has also raised the specter of reneging on his infamous
campaign promise to not raise taxes on anyone making less than $250,000 by burdening the economy with an enormous European style
value-added tax (VAT). Just yesterday the
Wall Street Journal warned that some moderate Republicans may fall for the false promise of a VAT as a means to "deficit reduction". To put it succinctly, raising taxes to reduce the debt
doesn't work and is nothing more than a ruse to grow government. In addition to all these tax increases is the uncertainty associated with ObamaCare. Nobody knows exactly how much it will cost businesses but one thing is certain: the higher taxes and mandates ObamaCare imposes on businesses make it less likely they will increase payroll.
Employers and potential employers are well aware of all these economy destroying initiatives emanating from the Obama Administration and the crushing debt which accompanies them. Businesses always look to the future and they don't like what they see. There is nothing in these programs that will lead to a better economy and thus, no reason for businesses to substantially add to payroll. Throughout the spring and early summer, economists have noted the tendency of businesses to
hoard cash. In fact, they are doing so at
record levels. Businesses which expect a strong economy don't generally hoard cash but rather invest it in business expansion to meet increasing demand resulting from the growing economy. The fact that businesses are hoarding cash at these unprecedented levels is a sure sign that they expect Obama's policies to negatively impact the economy, and they want to have the financial wherewithal to weather the storm.
To be sure, nobody can state with certainty whether or not we are heading for a double dip recession. As I indicated earlier, they are relatively rare.
Arthur Laffer and other economists are predicting that Obama's policies, particularly the coming tax increases, make it practically inevitable. Other economists, like
Larry Kudlow, are more optimistic and see the U.S. economy moving forward, albeit at a sluggish pace.
Personally, I think the odds have gone from about 1 in 4 six months ago to about 50-50 now. I have seen nothing from the Obama Administration to suggest they have any idea how an economy works. At this stage in a recovery, the economy should be roaring ahead as the pent up demand from the recession is unleashed as happened during the Reagan Recovery. Obama seems intent on preventing this. Perhaps I don't understand what, specifically, Obama is attempting to accomplish. If his goal is to push the economy back into recession, he's certainly going about it the right way.
Related:
Claude Sandroff has written an excellent article at the American Thinker in which he argues, persusively, that Obama's economic policies have resulted in the U.S. no longer being the best place in the world to invest capital. If Sandroff is correct, this is an ominous sign for future U.S. living standards. I won't try to summarize his piece here, you really need to
read the whole thing.
Update:
Ed Morrissey has a piece at Hot Air in which he notes that Obama's latest plan to "stimulate" the economy is to spend $2 billion to create 5100 of his cherished green jobs. These jobs will likely disappear when the government funding runs out since they aren't economic. Heh, that's about $392,000 per job!
Update II:
(H/T The Right Scoop) Nancy Pelosi claims unemployment checks are "
one of the biggest stimuluses to the economy". With visionary economic thinking like this from one of the leaders of the party in power, why isn't the economy roaring ahead at a 10% rate?
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