The jobs bill

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Jobs bill

 

The Jobs Bill and Other Faux Remedies

By ALAN NASSER

 

On March 17 Congress passed the “Hire Now Tax Cut” giving companies a break from paying Social Security taxes for the remainder of the year on any new workers hired who have been unemployed for at least 60 days.

 

The legislation is a token response to the emerging consensus in both the mainstream and independent media that the economy’s unemployment problem is cumulative, structural and long term. But the prescription is entirely inadequate to the diagnosis. This should come as no surprise, as official sources have offered muddled and confusing accounts of the patient’s malaise.

 

The Official Story: Unrealistic Optimism and Misleading Statistics

 

The White House and the Fed can’t seem to coordinate their stories. In January the president’s Council of Economic Advisors reported that the official unemployment rate would remain close to 10 percent for at least 3 years, through 2012. The Council foresees unemployment above 6% through 2015 and above 5% through 2020. But on Feb. 24 Ben Bernanke reported to Congress a projected unemployment rate of 6.5 to 7.5 percent by the end of 2012.

 

Both estimates almost certainly display the typical overoptimism of official economic forecasts. There are two main reasons for the chronic unrealistic optimism. The official measure of unemployment excludes both those who have given up looking for work because of the lack of jobs, and involuntary part-time workers. If these are taken into account, the more realistic unemployment rate would be at least 16-17 percent.

 

A second factor distorting unemployment projections is the unrealistic rate of economic growth projected by official sources. The Council assumed real GDP growth of 3.0 percent this year, and 4.3 percent in 2011. Bernanke forecast “a moderate-paced economic recovery, with economic growth of roughly 3 to 3.5 percent in 2010 and 3.5 to 4.5 percent in 2011, consistent with modern economic growth.” By “modern economic growth” Bernanke refers to the healthy growth rates of what economists call the “Golden Age”, the period from 1949 to 1973. This was the longest period of sustained economic expansion in American history: the economy grew at an average annual rate of 4.3 percent -the growth rate foolishly predicted, recall, for next year by the Council of Economic Advisors- and private-sector jobs increased at a rate of 3.5 percent a year. And in 1973 the real median wage was the highest it’s ever been.

 

The Golden Age is a benchmark for the authorities, and “recovery” is taken to mean a return to growth and employment rates at or close to those of 1949-1973.

 

 

 

It is worth looking at some of the ways the administration and the media suggest the implausible scenario that Golden-Age economic conditions are on the way to resurrection.

 

Statistical manipulation and half-truths are not uncommon. For example, in January the economy continued to bleed jobs, which is bad; it was also widely reported that the unemployment rate fell, which looks good. Both stats are accurate. How is this possible? The official unemployment rate fell because the number of workers leaving the workforce declined more rapidly than job losses.

 

For the week ending February 20, first-time jobless claims increased by 20,000. But we were told there was a silver lining: the number of unemployed workers collecting federally sponsored extended benefits dropped by 323,000. But this does not mean that those workers found employment. The decline is almost entirely due to workers having exhausted extended benefits prior to Congress approving another extension.

 

On February 25 the Commerce Department reported a 3 percent January increase in sales of durable goods. This looks especially promising: increased purchases of consumer durables such as autos, refrigerators and other big-ticket items had been a major factor in reversing most post-Second-World-War recessions. But a closer look reveals that when defense and aircraft purchases are subtracted durable goods sales fell by 2.9 percent. This comes as no surprise: with the number of unemployed continuing to increase, we should expect sales of higher-priced consumer goods to decline accordingly.

 

The media have claimed a rebound in manufacturing over the last few months, suggesting a corresponding job rebound in the making. In fact, an inventory bounce was in play. Businesses were re-stocking after an extended hiatus on new orders. The evisceration of US manufacturing which began with the “deindustrialization” of the late 1960s persists through the recession, with the reorganized General Motors currently planning the export of more jobs to low-wage countries. There is a telling indicator of the state of US manufacturing: we have no domestic consumer electronics industry.

 

Wal-Mart’s fortunes are considered a good measure of consumer spending. The company is after all the world’s largest retailer and the country’s single biggest employer. The business press reports that Wal-Mart’s profits continued to climb during the downturn, implying that consumers are managing to hold up in spite of the recession. But we want to know about the company’s domestic sales, a more accurate indicator of consumer purchasing power than total profits, which include overseas sales. In fact, Wal-Mart recently announced its first drop in domestic sales in its history, a decline of 1.6 percent, compared to a 2.4 percent increase for the same period a year ago. The relatively rosy profit picture is due to international sales, especially in Brazil and China. The sales decline is of course yet another indicator of cumulative unemployment.

 

Finally, there is the statistical sleight-of-hand of the Bureau of Labor Statistics (BLS). BLS performs a "net birth/death adjustment" on its unemployment data. The birth/death model uses business deaths to "impute" employment from business births. Thus, as more businesses fail, more new jobs are imputed to have materialized through business births. The birth/death model is based on statistics covering 1998-2002. This was a period during which explosive telecom and dot.com startups outumbered business failures. That period bears no resemblance to today's flat economic landscape. While the "surplus" jobs created by start-up firms has been revised lower this year, BLS continues to report from the indefensible assumption that jobs created by start-up companies tend to offset jobs lost by companies going out of business. John Williams of Shadow Government Statistics estimates that at least 50,000 birth/death jobs were conjured up in this way in the most recent BLS report.

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Meanwhile, here in Ohio, Stark county, UNEMPLOYMENT SOARED.

 

Pitiful. Just pitiful.