"Restore Confidence, Jobs will Follow"

Sydney M. Williams

Thought of the Day

“Restore Confidence, Jobs will Follow”

July 7, 2010

Other than the President, who after seeing Friday’s job report, responded: “Make no mistake – we’re headed in the right direction”, the general consensus was far more subdued. The Financial Times: “US jobs data point to flagging recovery”; The New York Times: “U.S. Reports Job Growth Lagged in Private Sector”; The Wall Street Journal: “U.S. Jobs Picture Darkens”, and Investors Business Daily: “Private Payrolls Lag, Leaving Total Jobs Off 125,000 In June”. In fairness to Mr. Obama, he did add that growth in job creation was too slow. But Paul Krugman, in a New York Times op-ed piece on July 4, wrote, “American workers are facing the worst job market since the Great Depression.” The unemployment numbers were higher and for longer during the 1980-1982 period than today; nevertheless, today’s environment is very tough.

A perusal of the release from the Bureau of Labor Statistics, out on Friday speaks to the Administration’s focus on government jobs, not those in the private sector. For example, the number of people employed in private industry has dropped by about 1.25 million over the past year (107.995 million to 106.740 million), while the numbers of those working for government have increased by just over 200,000 (22.567 million to 22.770 million). Unemployment among government workers is at a non-recessionary 4.4%.

All employment numbers must be viewed in the context that each year about 1.5 million new entrants are added to the workforce, which means we must add 125,000 jobs every month just to stay even. The civilian labor force – those working or actively seeking a job – shrank by 652,000 during the month, thereby explaining the unemployment rate decline from 9.7% in May to 9.5% in June. Despite relatively upbeat comments from the Obama White House the employment situation remains bleak. According to Monday’s New York Times, the fraction of the working-age population employed stands at 58.6%, its lowest level since the double recession of 1980-1982.

The story of a friend’s sister lends a human element to the job situation, which, thus far, has shown very little improvement, despite the nearly $800 billion of stimulus money allocated a year ago for that purpose. Her story goes beyond the almost forty pages of numbers from the Bureau of Labor Statistics. That report notes that there are 14.6 million people unemployed, 8.6 million “involuntary” part-time workers and 2.6 million who are “marginally attached” to the work force (a number which includes 1.2 million “discouraged” workers.) The civilian workforce, according to the BLS, is comprised of 154 million people, so that 16.8% of the population is either unemployed, working part-time, or discouraged.

But even for many who are employed the environment has been rough. My friend’s sister is an example. As a 50-year old, she had a good job working on Wall Street as an administrator making $140,000. Soon after the financial crisis struck she found herself out of a job. After a few months she was offered another, virtually identical, position for about half of what she was making before – $80,000. She swallowed her pride and took the position. Less than six months later that firm was merged and again she was out looking for work. A few months later, with her ego further deflated, she was offered a similar opportunity, but at $50,000. She had no choice but to accept the job. The damage to her confidence and self-esteem, however, has been severe. And she is one of the lucky ones. As a statistic, she shows up on the positive side of the ledger – she has a job, but is earning about a third of what she had been three years ago; it is not possible to mathematically quantify the impact on her psyche and her behavior. Her case, unfortunately, is all too common in today’s environment

With almost 17% of the workforce out of work, working part-time or just dissatisfied (essentially the U6 numbers), the focus must be on growth. Austerity has become the buzz-word and certainly government deficits (federal and state) are unsustainable. (The President has suggested that deficit reduction is on the calendar for next year, but I fear his words are only a euphemism for raising taxes, not spending cuts.) It is the debate between Paul Krugman and Niall Ferguson that needs to be joined. Professor Krugman yesterday suggested “throwing the kitchen sink” at the problem, a sink, he might not have noticed, we no longer possess. Professor Ferguson suggests a solution similar to that employed in the early 1980s (a combination of tax cuts, rate increases and spending reductions), a solution which tipped the economy into a steep but short recession, but which set the economy up for twenty years of growth. It is the restoration of confidence that is imperative. Should stimulus come from government or the private sector? The returns from last year’s government-led stimulus look pretty meager. It may be the moment to see what the private sector can do.

According to the U. S. Census Bureau there are 1.5 million businesses with 10 or more employees. These, along with the 4 million even smaller businesses, have been the engines of growth in our economy and employ 80% of American workers. These firms cannot function without confidence in the future, and that confidence requires visibility, which is critical for those making investment and hiring decisions. When government intrudes, as it has in health care, looks to be doing in finance reform (incredibly, not waiting for the report from the President’s own National Commission on Fiscal Responsibility and Reform) and cap-and-trade with unknown consequences, it sends a message to American business – pause, watch and wait.

The Administration has been determined to use the financial crisis has an excuse to centralize power, in banking, auto production, insurance, health care and energy. In doing so, they have increased regulation, passed a health care bill that will indubitably cover more people, but at the cost of raising prices and reducing benefits. The executive branch now has a pay czar whose responsibilities include monitoring and influencing the compensation of millions of Americans from industries as diverse as banking, autos, insurance and energy. The Administration has divided Americans by blaspheming Wall Street, failing to recognize the inextricable bonds between Main Street and Wall Street. They do not differentiate between the wheat farmer who uses the futures market for legitimate hedging purposes from the speculator whose motive is a quick buck.

What the Administration has not done is to encourage long term investment, or discourage consumption. Most importantly they have done nothing to restore consumer or business confidence, the single most important ingredient for the recovery process.