Friday, July 30, 2010

The jobless recovery - yeah right it's all Obama's fault

Over in the digital pages of today's Washington Post, Steven Pearlstein makes the genuine case that, whatever the faults of Mr. Obama's economic policies are (and I think there are more then a few), the lack of job creation isn't one of them:

This week, Princeton's Alan Blinder, a former vice chairman of the Federal Reserve, and Mark Zandi, chief economist at Moody's Analytics and a onetime adviser to John McCain's presidential campaign, released a paper laying out in simple and compelling terms how the government saved the country from another Great Depression. Using a standard econometric model, they backed out everything the government did to tame the financial crisis and stimulate the economy -- the zero interest rates and extraordinary lending by the Fed, the bailouts of the banks and the auto companies, the takeover of Fannie Mae and Freddie Mac, the tax cuts and the infrastructure payments and the money for the states. And what they concluded is that, without these actions, the economy would now be 8 percent smaller, with 8 million fewer jobs and a federal budget deficit this year of $2 trillion rather than $1.4 trillion.

The irony is that this set of bold government initiatives that saved the country from economic catastrophe remain as unpopular today as when they were introduced.

Now I've written before about how the economic crisis, dubbed the Great Recession, isn't all its cracked up to be. I've also written about how the myth that government doesn't create jobs needs to die. Yet here we are still slaved to the idea that if only businesses were free to do what they wanted, they would hire, and the economy would recover.

Its a nice theory, but it doesn't hold water. Yes, GM and Chrysler are adding new employees, thanks to government bailouts. But with the Chevy Volt set to debut at $41,000 one has to wonder if they have really learned anything. To say nothing of the fact that, nearly two years into the supposed recovery:

One would have hoped that, by this point in the recovery, businesses would have begun to use some of that cash to ramp up spending on research and development and to invest in new plants and equipment. But after falling sharply for two years, such spending has only just begun to rebound, and much of it has focused on faster-growing markets outside the United States. Some of the cash has been used to pay down debt or buy back stock. But so far the one thing businesses haven't done is hire back full-time employees, preferring instead to contract for temporary workers or increase the hours of the workers they already have.

The failure of the unemployment rate to back off from ts 9 to 10% "precipice" is not a failure of the White House's economic policy. Its conscious decison by business large and small (but mostly large) to hold profits for short term gain rather then make long term investments. Call me nuts, but didn't that behavior get us into this mess in the first place?


Mike at The Big Stick said...

I have to disagree with your analysis buddy. The reason businesses aren't investing in new employees is because they are being cautious. If you hire someone and things take another downturn you are stuck with trying to pay them or announcing layoffs. Neither is appealing. You also have to remember that in every economic downturn businesses trim fat and learn how to make-do with less. Often this means finding technological tools that eliminate employees and it also means resetting customer expectations.

A real-world example I would give is that we use to provide a lot of manually-generated reports for our customers based on their specific needs. These were labor-intensive and required a full admin staff to maintain. When the economy turned we begin to streamline the reports, often eliminating redundant data that we only included when we had to. Customers understood, they were cutting waste as well. Eventually everyone learned the new product was actually better and accepted it. We then found the new reports could often be auto-generated which saves us time and money. Thos admin positions were either eliminated or they were reassigned to other parts of our operation. No need to rehire.

For every employee we take on we have an automatic expense of $15,000 in healthcare costs on top of their pay. This math goes into every decision to hire that we make. Profits are the reason you start a company, not social work. We aren't in business to employee people. We're in business to make money. Expecting us to take on risk for social good is unrealistic.

I would also add that Democrats could increase our confidence level and make us more comfortable with hiring if they could provide some assurances on potential tax hikes. We discuss our tax burden quarterly and no one is comfortable with the outlook based on the signals from Congress.

Philip H. said...

Taxes? Really? Couldn't come up with csomething more creative? How much on a percentage basis of the tax burden that worries you is federal,and how much is state and local? And how much profit would you have to set aside to meet that burden? I suspect that most of what your company pays in tax each year isn't federal, and that even if there was an increase, you'd only loose a few percentage points of profit to account for it.

Leaving all that aside, if businesses are doing what they are "supposed" to do in lean times by shedding jobs in favor of streasm lining then where are the Republican politicians, supposed champions of all thing capitolistic, to remind people that its normal and ok? Haven't seen any, have you?

Look make all the $$ you want, but be upfront with people that 10% unemployment will be the norm, and stop blaming the Obama Administration for that decision.