January, 2014 Economic Crisis Update Part 2: Why Politicians Should Not Be Allowed To Play With Economics

Yesterday, we did our first in a three part series on the dire economic conditions the country and its citizens find themselves in at the start of a new year, 2014. As a quick recap, consider the following economically depressing news and statistics:

• There are a record number of Americans, over 20 million, that are either unemployed or under employed.
• There are a record number of Americans that are receiving food assistance from the Federal government, almost 50% than when Obama took office.
• Over half of the recent college graduating classes could either not find a job or could not find a job in their area of interest.
• A very high percentage of jobs created over the past few years have been only part time or temporary jobs.
• Household income has dropped steadily over the past five years despite the fact that the recession ended well over three years ago.
• Until recently, official national unemployment levels (U3) had been at record highs for record lengths of time.
• Increased costs of health insurance as a result of Obama Care will likely result in less disposable household income available in the coming years to expand the economy.
• The national debt has jumped to about $17 TRILLION, up over six TRILLION dollars since Obama took office in 2009.
• Monthly trade balance deficits with other countries continue at very high rates.

The current Washington political class has gotten us in this bad shape financially despite having the benefits of a record setting $830 billion economic stimulus program, record setting low interest rates for a record length of time by the Federal Reserve, record setting Federal Reserve liquidity creation by the Federal Reserve “printing money” and calling it “quantitative easing,” and an energy revolution that is providing low cost, and plentiful energy sources and higher paying jobs. Its pretty hard to screw up an economy when you have that much going for you but our political class managed to do so, from the White House to Congress to the Federal Reserve.

Our conclusion yesterday is that the economy is in very bad shape, especially the employment situation. While the government announced an unexpected drop in the unemployment rate in December, we maintained that the drop was due to hundreds of thousands of frustrated Americans dropping out of the work force and not do to the brilliant economic policies coming out of Washington.

Don’t believe us? Consider some reputable news sources, along with President Obama’s own words, and what they are saying about the latest sad economic news, as gathered and published by the fabulous website, Bankrupting America:

Economic Stimulus Program Background

- In 2009, the White House promised that the $830 billion economic stimulus package and program would reduce 2009’s high unemployment levels to 5% by 2014. Well, it’s 2014 and the nation’s unemployment rate is nowhere near 5%, having set records for being above 7% since 2009 for a record number of months. This prediction of 5% was from Christina Romer and Jared Bernstein, “The Job Impact Of The American Recovery And Reinvestment Act,” The White House, 1/10/09.

- Over the years, the President kept on insisting that the stimulus was working, which is either another set of lies and deceptions similar to Obama Care (e.g. “If you like your insurance you can keep your insurance.”) or pure, unadulterated economic ignorance”

• In 2009: President Obama said: “This Plan [the economic stimulus program] Will Save Or Create 3.5 Million Jobs.” “Over the next two years, this plan will save or create 3.5 million jobs. More than 90% of these jobs will be in the private sector – jobs rebuilding our roads and bridges; constructing wind turbines and solar panels; laying broadband and expanding mass transit.” (President Obama, “Remarks of President Barack Obama To A Joint Session Of Congress,” 2/24/09). We now know that none of these “shovel ready” projects ever happened, with economic stimulus funding being spend on far more stupid and inane programs, many of which we have discussed in this blog in the past and which had nothing do to with long term economic vitality or job growth.
• In 2010 President Obama stated: ”After Two Years Of Recession, The Economy Is Growing Again.” “The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That’s right -– the Recovery Act, also known as the stimulus bill. … And after two years of recession, the economy is growing again. Retirement funds have started to gain back some of their value. Businesses are beginning to invest again, and slowly some are starting to hire again.” (President Obama, “2010 State Of The Union Address,” 1/27/10). He neglected to say how painfully slowly businesses were hiring again, a hiring rate that had hardly any impact on the unemployment rate in the country. He also failed to mention that economic growth during his administration after the last recession was the lowest post recession growth performance in the past century.
• In 2011 President Obama stated: “The Stock Market Has Come Roaring Back. Corporate Profits Are Up. The Economy Is Growing Again.” “We are poised for progress. Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again. But we have never measured progress by these yardsticks alone. We measure progress by the success of our people. By the jobs they can find and the quality of life those jobs offer.” (President Obama, “Remarks By The President In The State Of The Union Address,” 1/25/11). Over 20 million Americans are either unemployed or under employed so that yardstick of “the quality of life those jobs offer” is coming up a little short of the Presidential rhetoric. Over 20 million Americans have not been successful in finding the right, quality job or position of employment. Almost 50 million Americans still need Federal food assistance so the only progress he brag about is how quickly he rose the nation’s dependence on government food assistance.
• In 2012 President Obama stated: “We’ve Come To Far To Turn Back Now.” ”In the last 22 months, businesses have created more than 3 million jobs. Last year, they created the most jobs since 2005. American manufacturers are hiring again, creating jobs for the first time since the late 1990s. … The state of our Union is getting stronger. And we’ve come too far to turn back now. As long as I’m President, I will work with anyone in this chamber to build on this momentum.” (President Obama, “Remarks by the President in State of the Union Address,” 1/24/12). While he claims 3 million jobs were created, a large percentage of them were temporary or part time jobs. While 3 million sounds impressive, it is quite low relative to every other post recession economic activity. 

Let’s now move from the President’s historical remarks and how far off his economic predictions and salvations were and examine what some reputable news sources are saying about our unemployment and economic plight:

2013 Year In Review: Weak Job Growth And Labor Force Participation Rate at 35 Year Low

- CNN Money: “2013 ends with weakest job growth in years” Annalyn Kurtz, CNN Money, 1/10/14

- MarketWatch: “U.S. economy adds just 74,000 jobs in December” Jeffry Bartash, MarketWatch, 1/10/14)

- MarketWatch: Smallest Jobs Increase Since Start of 2011. “The U.S. added just 74,000 jobs in December to mark the smallest increase since the start of 2011, suggesting that the nation entered 2014 with less momentum than a raft of other economic indicators had signaled.” Jeffry Bartash, MarketWatch, 1/10/14.

- Market Watch: “Participation rate in labor force matches 35-year low” Market Watch, 1/10/14/

- MarketWatch: Labor Force Participation Rate Lowest Since 1978. “The participation rate in the labor force declined one-fifth of a percentage point to 62.8% in December, matching October’s level, which was the lowest since 1978."  Market Watch, 1/10/14.

- National Review: “A Big Miss: 74,000 Jobs Created, Labor Force Shrinks Again” Patrick Brennan, National Review, 1/10/14.

- National Review: Unemployment Rate Fell Mainly Because More People Dropped Out Of Work Force. “The unemployment rate, meanwhile, fell to 6.7% from 7.0% – the lowest level since October 2008 – but the decline appeared to occur mainly because more people dropped out of the labor force.” Patrick Brennan National Review, 1/10/14.

And The CBO Warns That Debt Will Remain Historically High:

- Congressional Budget Office: Federal Debt Held By The Public On The Rise In The Long Term: “By 2023, CBO projects, the budget deficit would grow to 3.3 percent of GDP under current law, and federal debt held by the public would rise to 71 percent of GDP and would be on an upward trajectory…” Congressional Budget Office, “Options for Reducing the Deficit: 2014 to 2023,” November 2013.

- Congressional Budget Office: High Deficits Will Cause Federal Debt Held By The Public To Be Far Higher Than Average. “With such deficits, federal debt held by the public is projected to remain above 70 percent of GDP—far higher than the 39 percent average seen over the past four decades.” Congressional Budget Office, “Updated Budget Projections: Fiscal Years 2013 to 2023”, May 2013.

- Congressional Budget Office: Such High Debt “Would Have Significant Negative Consequences For Both The Economy And The Federal Budget” “In fact, such high and rising amounts of federal debt would have significant negative consequences for both the economy and the federal budget. Those consequences include reducing the total amounts of national saving and income relative to what they would otherwise be; increasing the government’s interest payments, thereby putting more pressure on the rest of the budget; limiting lawmakers’ flexibility to respond to unexpected events; and increasing the likelihood of a fiscal crisis.” (Congressional Budget Office, “Options for Reducing the Deficit: 2014 to 2023,” November 2013)

So what is the White House and Washington concerned with in 2014? Are they focused on making it easier for businesses to create jobs? 

Are they focused on reducing the extreme regulatory burdens this administration has placed on the economy since 2009, a burden that is mostly done only to justify bureuacrats’ jobs in Washington? 

Are they focused on job training so that the almost 50 million people on food stamps can find a way off of government dependence? 

Are they focused on fixing our public schools so that American kids can better compete in this increasingly high tech world economy? 

Are they focused in on cutting wasteful spending and starting to get the national debt down, as strongly recommended by the Congressinal Budget Office?

Unfortunately, they are focused on none of these critical needs. Instead, they are focused on a new political talking point called “income inequality.” If you look beyond the public relations catch phrase, ”income inequality,” all you find is the desire to raise the minimum wage:

White House Turns Focus To Income Inequality in 2014

The Washington Post Wonk Blog: “Obama wants to make inequality the defining issue of 2014” Ezra Klein and Evan Soltas, “Obama wants to make inequality the defining issue of 2014,” The Washington Post Wonk Blog, 1/16/14.

Politico: Income Inequality Campaign To Intensify Later In 2014. “The inequality campaign will intensify later in the year with a push in the Senate to raise the federal minimum wage that will be synced with President Barack Obama’s State of the Union speech, which is expected to dig heavily into the issue of economic disparity.” Burgess Everett, “Dems seize on income inequality for 2014,” POLITICO, 1/5/14.

“Income inequality” is another name for “we have no basic understanding of economics.” In a sour economy such as ours, where businesses are struggling with inflation and Obama Care taxes and regulations and ever increasing other government regulations, there is not a lot of growth potential. Without growth potential, business expense budgets are pretty tight. Tight budgets mean no increases and if the Federal government forces some businesses to pay more money to employees, many employers will just have to go to fewer employees. The math of the whole wage thing is pretty simple.

Higher salaries for fewer employees usually means higher unemployment, more on food assistance, etc. That is what happens when you let politicians play with economics. It is like giving a drunk teenager the keys to the family car, you know it will not end well.