Plan B Forum

Pt 1.

As has been pointed out in Strop's thread, the unemployment rate as reported has been dropping for the past three months, and this, (especially the last month's drop accompanied by a robust creation of over 250,000 private sector jobs) is of course good news for the economy. (And of course Obama will get and take credit for this, though he manifestly and demonstrably does not deserve it...more on that in a bit)

I've waited to comment on this trend until now, because prior to this month the gains were largely illusory; let's take a look at how the trend has unfolded:

In November the unemployment rate took the largest "drop" from 8.9 to 8.5 per cent. However, if you look at the underlying numbers, nearly three quarters of that drop was bogus. The economy added 120,000 jobs but, a little over 300,000 people stopped looking for work, and were no longer counted in the figure.

The next month, the unemployment rate took a less dramatic one tenth of a per cent drop; but this was December and a large portion of that related to temporary seasonal employment.

After these two months of largely false unemployment rate drops, I began to develop a theory about what could happen next...

It has seemed to me for some time, that the main factor holding back an improvement in real employment in this country has been a vicious cycle fueled by fear.

Since the fall of 2008, the personal savings rates in the US has gone from a ridiculously low .79%, to now over 5%. At the same time household debt has declined for 12 consecutive quarters.

So people have been taking the money they make and using it for the past three years to increase their savings, and pay down their debts.

This is a *good* thing for our society and future as a nation; we never want to go back to the savings rates and debt levels that existed prior to the collapse of the housing boom and financial sector crisis. But it also means that there is a fair bit of available disposable income that people have been holding on to because of a fear that they could lose their jobs.

I have long argued that the biggest negative affect that high unemployment has on the economy doesn't come from that 8-9 percent who have lost their jobs; but from the fear that this kind of unemployment rate creates in another 40-50% of the working population, (which is what polls have indicated for some time has been the case) that they might lose theirs.

How this negative vicious cycle works is really pretty simple; when half the population is worried about becoming unemployed, they are not, quite logically, going to spend money they don't absolutely have to. As a result consumer spending drops, businesses make less money and lay off workers or don't hire additional ones, unemployment remains stagnant or goes up, the fear factor remains intact, and thus consumer spending continues to stagnate, causing the cycle to repeat itself....

This is where my theory comes in. After watching the previous two month drops, it occurred to me that while these drops did not in real terms mean much they could be very important in terms of breaking the fear cycle; causing consumer spending to rise, which would in turn create *real* progress in private sector job creation.

That is what appears to have happened.

And when you pair up substantial pent up consumer demand, with the more than 2 trillion in investment dollars that US business currently has sitting on the sidelines because of the lack of consumer spending, if the fear cycle is now being broken, we may actually be sitting on the verge of a fairly long and sustainable job growth boom....

This would obviously not only be great news for everyone going back to work, but it would also make a huge dent in our debt projections; as I have said repeatedly, all of the tax increases and spending cuts that one can imagine, combined, will never achieve anywhere near the affect that putting people back to work does to reduce the debt. Debt projections drop by half if we get back to a 4% unemployment rate.

There are an number of things that could derail or damage this of course; a huge increase in oil prices, the shaky financial situation in Europe, etc. But the prospect for a job boom is a real one.

Pt. 2

Now, As to Obama's role (or lack there of) in this...

First of all, it should be pointed out, (for anyone who needs it pointed out) that I have never been one of those on this board (and we certainly have some) who has reflexively refused to give Obama credit for anything.

I have given him and his Administration credit on a number of occasions, particularly in matters related to national security and defense. (hell, I even started a thread praising Hillary Clinton's performance as SOS)

I've even praised a couple of things he's done domestically; unlike some I supported the auto industry bailout, (which, like the TARP, is turning out have been a pretty good investment )

But in terms of what policies the Obama administration has followed that have set the table for the private sector job growth that I describe in the OP, the answer is damn few. And the consumer fueled job growth that may now unfold will be happening in large measure despite Obama's policies, not because of them.

The centerpiece of Obama's economic recovery policy of course was the MOAP "Stimulus" package....

A bill which had three primary components:

1.A huge bailout to the public union employee sector (no private job creation there; as I said that was like paying the store clerks salaries rather than providing more money for the public so there would be more customers)

2.A relatively piddling sum for infrastructure (which under Obama's original plan was supposed to be the cornerstone of the package, but which got sacrificed to the union payoffs once the plan was turned over to Pelosi and her gang of party hacks)

3. An incredibly poorly structured $300 billion tax cut (which was larger and better structured under Obama's original plan.) What emerged from Team Pelosi was puny, putting an average of $30 per month into the hands of consumers, (which is why I dubbed it "the two pizza a month tax cut") and short lived. (I still think it may have been deliberately designed to fail, so that when pressure for additional tax cuts came, the Demo Congressional Leadership would be able to say "we tried that, it didn't work")

I find amusing the disingenuous way MOAP apologists like to claim it was a thumping success by comparing it to doing nothing. Which was of course never the alternative; there were a number of plans and approaches, including Obama's original plan, almost any of which would have provided more bang for the buck than the MOAP .

Yes, I'll stipulate that if you spend 800 billion dollars it's very tough to accomplish absolutely nothing positive. Even if you toss it in the street and set it on fire, you'll at least be providing work for some firefighters....but the return on investment was pitiful, and it contributed almost nothing to the factors that are now possibly poised to bring down private sector unemployment significantly.

And of course the second largest piece of Obama's recovery strategy, the "Jobs Bill" he finally unveiled last fall does little for the private sector, and no significant parts of it have been passed, let alone implemented, so it would be ridiculous to try and give any credit to that initiative.

Obama has endorsed some polices that have contributed positively at the margins...the reduction in the payroll tax, (which a lot of Republicans have been opposing or accepting reluctantly, but which I fully support) has certainly helped to put more money in the hands of consumers. (though most of that has probably gone directly into spending, rather than the savings that could now fuel a job boom)

But the way our political system works, a large segment of the electorate will give Obama credit for dropping unemployment, even if his polices have had almost nothing to do with it. (This would be true no matter who was in office; Presidents always get both credit and blame for things they have little or nothing to do with)

And his spinners and surrogates will be out crowing about how brilliantly conceived and successful the MOAP was, and how it deserves the credit for the robust private sector jobs increase (never mind that if you examine it there's a complete disconnect between how it spent money and what's fueling the employment rise...)

And never mind that it would seem to beg the question, "Gee, if the MOAP was such a rousing success, than why did Obama find it necessary to unveil a second multi-hundred billion dollar package just four months ago?"

If unemployment continues to fall, Obama's political fortunes will rise, and it will be difficult for even for a competent opponent running a good campaign (which doesn't appear to be a likely possibility at the moment) to defeat him.

Jim....I need graphs, GRAPHS....understand?

Like that fella from Sta. Cruz.

Why would anyone vote for the party who caused the worst economic disaster in 80 years and then tried to block any improvements just to get re-elected?

Republicans = Al Qaeda's best friends.

yrs,
rubato

dales wrote:Jim....I need graphs, GRAPHS....understand?

Like that fella from Sta. Cruz.

Well, unlike The Bard Of Santa Cruz, (who favors lengthy copy and paste jobs from second rate political hacks followed with witty, succinct and poignant observations like, "repuglicans are the party of treason and they hate women") I prefer to deal with known facts and then provide my own analysis (which one may choose to agree with or disagree with)

I admit I did not include links to back up my assertions about the unemployment rate, and it's decline over the past three months, or the savings rates, or the reductions in household debt...

But I am perfectly prepared to do so if challenged on them...

I assumed that most folks here pay close enough attention to the news to know that these numbers are accurate ...

One may very easily disagree with my analysis or my conclusions...

And we can have a discussion on that basis...

But if there is a disagreement about the body of facts that I have based my analysis and conclusions upon, please bring it forward....

And I will do my level best to address it in an intellectually honest way.