"It is Still the Economy"
Sydney M. Williams
“It’s the economy, stupid” was a sign hung in Bill Clinton’s headquarters to keep the staff on message during the 1992 Presidential campaign. Even though the economic recovery was already well underway, as it is today, the message should be re-hung, as next year’s campaign gets underway. The 1991 recession had been very mild; nevertheless the recovery, which began in the fourth quarter of 1991, was stronger than that of today. A strong economic expansion, despite the depth of the 2008-2009 recession, remains more of wishful thinking than a realistic expectation.
The country is in its seventh quarter of recovery, according to the National Bureau of Economic Research (NBER). The average of the six positive quarters reported thus far has been 2.9%. No two time periods are the same, but to put that number in context, the average of the first six quarters of recovery in 1983-84 was 5.7% and the average in 1975-76 was 4.1%. This recession was worse than those two, in terms of GDP decline; so theoretically should have experienced a sharper rebound.
The biggest problem has been employment. About 1.4 million people enter the labor force every year, indicating we must add about a hundred and twenty thousand to the payrolls every month just to keep unemployment level. (The estimated workforce in 2000 was 143 million; today it is about 158 million.) While the total number of employed persons is about the same today as it was in 2008, the unemployment rate has risen from 6% to 9%. In February 192,000 were added to the payrolls, a good number, but since the payroll number turned positive, in March 2010, we have added a monthly average of 106,000, not enough to offset the natural increase of people entering the workforce. Productivity gains, however, have allowed GDP to increase by about $300 billion, indicating that fewer people are producing more goods and services, a good thing for the economy, if not employment.
There have been several recommendations to improving employment over the long term, most focusing on education, but thus far little has been done to solve the immediate problem. The number of high school graduates going to college has been trending higher, approaching 70%, yet, according to Edward Gordon author of Winning the Global Talent Showdown, there are about three million jobs requiring technical skills, that have gone unfilled because of a lack of qualified applicants. The majority of those jobs are in science, technology and engineering, the qualifications for which could be provided, according to Mr. Gordon, by two-year colleges, or through apprenticeships. David Roberts, CEO of Carlisle Companies, told CNBC last August that he cannot find enough qualified workers who are willing to live in small towns in places like North Dakota (a state with an unemployment rate of about 3.5%.)
Taxpayer–supported programs like food stamps and extensions of unemployment benefits have become, as David Rosenberg described somewhat crudely but accurately, the modern equivalent of yesterday’s soup kitchen. The line between providing the necessary support for needy families and giving support that disincentives the desire to seek work is difficult, and perhaps impossible, to define. Compassion is integral to America; yet one cannot help thinking that, as a society, we have become spoiled. College has become an excuse, in too many instances, for four years of partying, while learning little that is practical. The concept of becoming a welder, a plumber or an electrician appears beneath one’s dignity. And moving to the farm fields of Indiana or the windswept plains of North Dakota, states far more business friendly than New York, New Jersey, California or Connecticut, is seen by too many as too great a sacrifice.
But there are lessons that Washington and many of the coastal states could learn from their Midwest cousins – a more attractive tax environments for one and a friendlier regulatory environment for another.
An interview in yesterday’s Wall Street Journal with Representative David Camp, Republican chairman of the House Ways & Means Committee provided little that was positive, in my opinion. Like so many in Washington, he speaks of simplified and lower tax rates for both corporations and individuals, but also like so many he provided no specifics. While he said that America needs a tax code that promotes job creation and reduces complexity – a fact with which no sane person would disagree – he begged off when asked which deductions he would eliminate. Warren Buffett once famously said, when arguing for higher tax rates, that his actual tax rate was lower than that of his secretary. A flat tax would fix that inequality more easily than raising nominal rates, but leaving myriad deductions in place. One can bet that should Mr. Buffett’s tax bracket be raised, his accountant would simply sharpen his pencil, turn up the lights and find a favorable path through the maze that benefitted his benefactor – and likely get a raise for doing so.
There is little question in my mind that overregulation, combined with a tax code whose complexity benefits only lawyers and accountants, acts as an inhibitor on the hiring plans of businesses. An emphasis on community colleges, which provide needed and practical skills, should become a policy initiative. (In fairness, President Obama has talked about such programs.) But changing the mindset of the country toward an emphasis on the pride of production and a sense of self-reliance, away from self gratification and dependency on government is difficult to achieve. When almost 50% of the working population pay no income tax (apart from payroll taxes), it means they have no skin in the game. Government, to these people, is seen as a benevolent provider, not as an entity to which one should contribute. That is an unhealthy situation.
The anemic recovery we are experiencing is not helped by world events. Rising commodity prices are having an impact, as the consumer is still 65% or more of our economy and, while the Federal Reserve may not consider food and energy crucial to the measurement of inflation, I can report that those who live in small town America do. The events in the Middle East may not cause oil prices to rise, but they sure won’t create lower prices. The earthquake, Tsunami and the explosions at the nuclear facilities will create demand as the country rebuilds, but lower production from Japan is unlikely to improve the global economy.
It is, as politicians will learn, still the economy.
Thought of the Day
“It is Still the Economy”
March 18, 2011“It’s the economy, stupid” was a sign hung in Bill Clinton’s headquarters to keep the staff on message during the 1992 Presidential campaign. Even though the economic recovery was already well underway, as it is today, the message should be re-hung, as next year’s campaign gets underway. The 1991 recession had been very mild; nevertheless the recovery, which began in the fourth quarter of 1991, was stronger than that of today. A strong economic expansion, despite the depth of the 2008-2009 recession, remains more of wishful thinking than a realistic expectation.
The country is in its seventh quarter of recovery, according to the National Bureau of Economic Research (NBER). The average of the six positive quarters reported thus far has been 2.9%. No two time periods are the same, but to put that number in context, the average of the first six quarters of recovery in 1983-84 was 5.7% and the average in 1975-76 was 4.1%. This recession was worse than those two, in terms of GDP decline; so theoretically should have experienced a sharper rebound.
The biggest problem has been employment. About 1.4 million people enter the labor force every year, indicating we must add about a hundred and twenty thousand to the payrolls every month just to keep unemployment level. (The estimated workforce in 2000 was 143 million; today it is about 158 million.) While the total number of employed persons is about the same today as it was in 2008, the unemployment rate has risen from 6% to 9%. In February 192,000 were added to the payrolls, a good number, but since the payroll number turned positive, in March 2010, we have added a monthly average of 106,000, not enough to offset the natural increase of people entering the workforce. Productivity gains, however, have allowed GDP to increase by about $300 billion, indicating that fewer people are producing more goods and services, a good thing for the economy, if not employment.
There have been several recommendations to improving employment over the long term, most focusing on education, but thus far little has been done to solve the immediate problem. The number of high school graduates going to college has been trending higher, approaching 70%, yet, according to Edward Gordon author of Winning the Global Talent Showdown, there are about three million jobs requiring technical skills, that have gone unfilled because of a lack of qualified applicants. The majority of those jobs are in science, technology and engineering, the qualifications for which could be provided, according to Mr. Gordon, by two-year colleges, or through apprenticeships. David Roberts, CEO of Carlisle Companies, told CNBC last August that he cannot find enough qualified workers who are willing to live in small towns in places like North Dakota (a state with an unemployment rate of about 3.5%.)
Taxpayer–supported programs like food stamps and extensions of unemployment benefits have become, as David Rosenberg described somewhat crudely but accurately, the modern equivalent of yesterday’s soup kitchen. The line between providing the necessary support for needy families and giving support that disincentives the desire to seek work is difficult, and perhaps impossible, to define. Compassion is integral to America; yet one cannot help thinking that, as a society, we have become spoiled. College has become an excuse, in too many instances, for four years of partying, while learning little that is practical. The concept of becoming a welder, a plumber or an electrician appears beneath one’s dignity. And moving to the farm fields of Indiana or the windswept plains of North Dakota, states far more business friendly than New York, New Jersey, California or Connecticut, is seen by too many as too great a sacrifice.
But there are lessons that Washington and many of the coastal states could learn from their Midwest cousins – a more attractive tax environments for one and a friendlier regulatory environment for another.
An interview in yesterday’s Wall Street Journal with Representative David Camp, Republican chairman of the House Ways & Means Committee provided little that was positive, in my opinion. Like so many in Washington, he speaks of simplified and lower tax rates for both corporations and individuals, but also like so many he provided no specifics. While he said that America needs a tax code that promotes job creation and reduces complexity – a fact with which no sane person would disagree – he begged off when asked which deductions he would eliminate. Warren Buffett once famously said, when arguing for higher tax rates, that his actual tax rate was lower than that of his secretary. A flat tax would fix that inequality more easily than raising nominal rates, but leaving myriad deductions in place. One can bet that should Mr. Buffett’s tax bracket be raised, his accountant would simply sharpen his pencil, turn up the lights and find a favorable path through the maze that benefitted his benefactor – and likely get a raise for doing so.
There is little question in my mind that overregulation, combined with a tax code whose complexity benefits only lawyers and accountants, acts as an inhibitor on the hiring plans of businesses. An emphasis on community colleges, which provide needed and practical skills, should become a policy initiative. (In fairness, President Obama has talked about such programs.) But changing the mindset of the country toward an emphasis on the pride of production and a sense of self-reliance, away from self gratification and dependency on government is difficult to achieve. When almost 50% of the working population pay no income tax (apart from payroll taxes), it means they have no skin in the game. Government, to these people, is seen as a benevolent provider, not as an entity to which one should contribute. That is an unhealthy situation.
The anemic recovery we are experiencing is not helped by world events. Rising commodity prices are having an impact, as the consumer is still 65% or more of our economy and, while the Federal Reserve may not consider food and energy crucial to the measurement of inflation, I can report that those who live in small town America do. The events in the Middle East may not cause oil prices to rise, but they sure won’t create lower prices. The earthquake, Tsunami and the explosions at the nuclear facilities will create demand as the country rebuilds, but lower production from Japan is unlikely to improve the global economy.
It is, as politicians will learn, still the economy.
Labels: TOTD
posted by Thought of the Day @ 6:26 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home