"A Labor Day Without Labor"

Sydney M. Williams

Thought of the Day

“A Labor Day Without Labor”

September 6, 2011

Well, Labor Day has come and gone, and the problem for Americans remains as it has for three years – laborers, but not enough jobs. The labor report on Friday was dismal – zero jobs reported for August and the number for June and July revised down by 58,000. The report sent markets skidding with the DJIA falling 2.2% and evoked depression among those hopeful for an economic recovery. Even the President, who rarely misses an opportunity to speak (as long as his teleprompter is working,) remained silent.

The American Recovery and Reinvestment ACT (ARRA), better known as the Stimulus Bill, was passed by Congress and signed by the newly elected Mr. Obama in February 2009. In August of 2010, the CBO (the Congressional Budget Office) claimed that ARRA had created or saved 3.3 million jobs, reduced unemployment by 1.8% and significantly contributed to GDP. A few months later the estimate for jobs created was lowered to 2.7 million. By March of 2011, the estimate was down to 1.8 million jobs created. Finally, in August of this year, the CBO admitted that 1.8 million jobs had been lost since ARRA was enacted. GDP, which by the fourth quarter of 2009 was running at 5.6%, grew less than one percent in the first half of 2011. Whatever the White House and Congress are doing, they are not helping jobs or the economy.

According to a report in Saturday’s New York Times, the percentage of Americans working – 58.3% – is the lowest rate since 1983. It seems fair to say that ARRA spent, but did not stimulate. The promises of hope in February 2009 proved ephemeral. Thus far there has been no admission that the Act designed to put Americans back to work was ill conceived and poorly administered. And expect no mea culpas on Thursday night. However, this President has been nothing if not creative in diverting attention and assigning blame to others – other people and acts of God.

The President’s assigning of blame brings to mind words written by Anthony Trollope. In his novel, Barchester Towers, published 150 years ago, he wrote: “Wise people, when they are in the wrong, always put themselves right by finding fault with the people against whom they have sinned.”

In making his point more forcefully (and demonstrating the unchanging nature of the human psyche,) Mr. Trollope added: “A man in the right relies easily on his rectitude and therefore goes about unarmed. His very strength is his weakness. A man in the wrong knows that he must look to his weapons; his very weakness is his strength. The one is never ready for combat, the other is always ready. Therefore it is that in this world the man that is in the wrong almost invariably conquers the man that is in the right, and invariably despises him.” Mr. Obama knows his Trollope, as do many in Washington and in mainstream media.

The pending battle about jobs pits Keynesians, like the President and the New York Times, against supply-siders, like the Republican House leadership and the Wall Street Journal. (Keynesian advocates now claim that previous efforts were not big enough.) Benefiting from President Reagan’s adoption of a supply-side approach – a lower and simplified tax code and less regulation – the economy grew mightily during the 1980s and 1990s. Under President Bush spending and budgetary disciplines slackened. The wars in Iraq and Afghanistan were not funded properly and a drug benefit program was layered onto Medicare, (one of the few federal programs, however, that is actually below its expected cost.) Nevertheless, and despite criticism of the Bush tax cuts, the 2007 Federal budget deficit reached lows for the decade. The credit crisis scuttled the recovery. The most important criticism of supply-side economics is that the benefits are not fairly disbursed, so that during the past thirty years the top twenty percent of income earners saw their wages rise at a rate far in excess of those in the bottom twenty percent. Critics suggest results were not fair; though few would argue that technology advancement, food production, the lower costs of imported clothing, etc. did not benefit all members of society. Life is never fair.

Keynesians base their argument on the concept that the problem with the economy is one of demand – that there is none, or at least not enough. They see the answer as government creating jobs, essentially transferring income from those that have to those that do not. The New York Times lead editorial on Sunday was a manifesto of Keynesian thinking. It is, they wrote, “vital to extend federal unemployment benefits and the temporary payroll tax cut.” The highway trust fund should be used to “create some 120,000 jobs a year over the next three years.” A $50 billion school renovation program would employ 500,000 workers…and could easily be scaled up.” While the Times job numbers appear pulled from a hat, the problem with the Keynesian approach is that it prevents the natural flow of capital from return-based investment toward mandated investment, thereby negatively impacting the ability of the economy to compete globally. A perfect example is the sorry case of Solyandra, a California-based manufacturer of solar panels that the White House showcased a year ago as a model for “green” technologies. When private investors balked, the federal government anted up $535 million dollars. Now, two years later, the money is gone – it was ours, the taxpayers – and 1100 employees have lost their jobs.

The only net creator of jobs in the U.S. has been private industry and, within that sector, it has been small businesses. Large companies, like GE have become global enterprises, with factories, service centers and retail outlets around the world, employing fewer Americans than twenty years ago. Entrepreneurs, funded by banks, private equity and the public capital markets are the engines of economic and job growth. While some regulation is necessary to ensure that safety and health standards are met, excessive regulation and burdensome taxes impede job creation.

Robert Reich, in a heart-rending piece in Sunday’s New York Times, deplored the decline of the middle class, “The Limping Middle Class.” He is right that wages for all but the highest earners have not kept pace with productivity gains. But early in the article, he provides the reason – “new technologies (in the 1960s and ‘70s)…started to undermine any American job that could be automated.” The answer, as he suggests, begins with education, but it also requires recognition that people’s abilities and aspirations vary. Equality of opportunity should be government’s goal. Outcomes are determined by individual desire, hard work and intelligence, (along with a bit of luck.) Mr. Reich cannot believe that the answer to our economy is a 21st century version of Ludditism?

So Labor Day has come and gone and the job market makes no headway. Washington has damaged confidence among investors and small business people. The emerging world advances. We linger, wrapped up in silly disputes, such as speeches, debates and Washington protocol. The President has yet to release the free trade bills, while playing footsy with unions who are fighting global competition. Teacher’s unions are more interested in the welfare of their members than in the progress of their students. Our ability to grow and add jobs is hindered by a government fostering a vision of pastoral peace and prosperity without having to work for it.