Gallup Poll: Obamacare Causing Small Businesses to Freeze Hiring

'Small business owners' fear of the effect of the new health-care reform law on their bottom line is prompting many to hold off on hiring and even to shed jobs in some cases, a recent poll found.

"We were startled because we know that employers were concerned about the Affordable Care Act and the effects it would have on their business, but we didn't realize the extent they were concerned, or that the businesses were being proactive to make sure the effects of the ACA actually were minimized," said attorney Steven Friedman of Littler Mendelson. His firm, which specializes in employment law, commissioned the Gallup poll.

"If the small businesses' fears are reasonable, then it could mean that the small business sector grows slower than what economic conditions otherwise would indicate. And small businesses have been a growth engine in the economy," Friedman told CNBC.

Forty-one percent of the businesses surveyed have frozen hiring because of the health-care law known as Obamacare. And almost one-fifth—19 percent— answered "yes" when asked if they had "reduced the number of employees you have in your business as a specific result of the Affordable Care Act."

The poll was taken by 603 owners whose businesses have under $20 million in annual sales.' - Will Obamacare Hurt Jobs? It's Already Happening, Poll Finds, CNBC 06/19/2013

Link to entire article appears below:

http://www.cnbc.com/id/100825782?__source=yahoonews&par=yahoonews

April 2012 Jobs Report: a jobs situation which is an abysmal failure of monumental proportions.

‘Mr. Obama argues that the economy is recovering slowly from a deep recession, and Congress should do more to spur growth. On Friday, he noted that the report continued more than two years' worth of job growth, while acknowledging the lingering weakness.

"After the worst economic crisis since the Great Depression, our businesses have now created more than 4.2 million new jobs over the last 25 months—more than one million jobs in the last six months alone," he told students at a suburban Virginia high school. "But there's still a lot of folks out of work, which means that we've got to do more."

He said he would urge Congress to "take some actions on common-sense ideas that can accelerate even more job growth." He didn't say what he would propose. Most of the ideas he has put forth in the past have gone nowhere, including more infrastructure spending and aid to states to keep public employees such as teachers employed.’ - Jobs Engine Sputters Again in April, WSJ, 05/05/2012 (1)

　

Robert Higgs of the Independent Institute has been pointing out that one should by-pass the “unemployment number” and focus on “total employed”. Total employed has not changed since the official end of the recession [06/2009]. Hence if one argues “..have now created more than 4.2 million new jobs over the last 25 months…” then somewhere in the vicinity of 4.2 million jobs have been destroyed. In the famous words of Billy Preston: nothing from nothing equals nothing.

Then we see the wonderful political phenomena of do something appear: ‘He said he would urge Congress to "take some actions on common-sense ideas that can accelerate even more job growth." ‘ That is, politicos need to show the voting public they are “doing something”.

Hence we have nothing to show for doing something [stimulus, cash-for-clunkers, extended unemployment benefits, etc., etc.] therefore we need to do something about the something. -Or- “Government is the only enterprise on earth, that when it fails, it merely does the same thing over again, just bigger”. - Don Luskin

Then we have “how you feel about it today” economics:

“The job market was soft in April, given the tepid payroll job gain and the decline in labor force participation. But it isn't as soft as the data suggest, as it reflects payback from the very warm winter, which juiced up job gains earlier in the year,” said Mark Zandi, the chief economist for forecaster Moody's Analytics. “Underlying job growth, abstracting from the temporary effects of the weather, is over 175,000 per month. This isn't boom times, but it is solid enough to bring down unemployment further.”

“The decline in unemployment also reflects the expiration of the emergency unemployment-insurance program in an increasing number of states. Older workers losing unemployment insurance are leaving the workforce, contributing to the decline in labor force participation, and younger workers that were slow to take a job now have no choice,” Zandi said. “I expect the job market to reaccelerate later this summer and fall.” - The Sun News, Myrtle Beach, SC, 05/05/2012 (2)

　

　

Beyond Zandi being Zandi, think for a moment what he is alluding to when he states: “The decline in unemployment also reflects the expiration of the emergency unemployment-insurance program in an increasing number of states. Older workers losing unemployment insurance are leaving the workforce…”. That means that these older workers that were collecting unemployment benefits were only doing so to bridge to retirement with no intention of looking for/find a job in many, many cases. That is, he is confirming what many believe i.e. extremely extended unemployment benefits are a disincentive. However he is also raising the phenomena of “strategically unemployed” (akin to strategic default). That some of the unemployed remained strategically unemployed to gain maximum benefits before they qualified for yet another program e.g. social security.

If one takes job creation, plots it on a graph, and takes the twenty year historical trend, projects the trend forward from the end of the recession until today, we are 4.1 million jobs below trend. That is, one would need to create 4.1 million jobs today, right now, instantly to return to the twenty year job creation trend line! Then one would need to continue the job growth to continue on the trend line. Stated alternatively, the lack of job creation has created a very deep hole from which to climb out.

One finds oneself 4.1 million jobs below trend, finds an army of discouraged workers approaching 4 million, finds still millions counted as unemployed actively seeking jobs, extended unemployment benefits causing disincentives as well as shenanigans and the same number are employed today as the number employed at the end of the recession [06/2009] .....all of which exists despite the political maneuvers of "doing something" over and over again. In other words, the political mantra of “the economy recovering slowly” is political speak for a jobs situation which is an abysmal failure of monumental proportions.

Notes:

(1)http://online.wsj.com/article/SB10001424052702304743704577383713904032818.html

　

(2)
http://www.myrtlebeachonline.com/2012/05/04/2810374/april-jobs-report-suggests-slowing.html









　

February Jobs Report: Upon Further Review

The Employment Situation Report – 02/2012 released Friday 03/09/2012 by the Bureau of Labor Statistics showed an unchanged unemployment rate as measured by U3 also known as “headline unemployment”. The rate remained at 8.3%. (1)

The report shows a 476,000 increase in the civilian labor force of which all gained employment hence the numerator and denominator of the unemployment formula increased equally, hence the U3 rate remains at 8.3%.

If one drills down into the data and applies “inflow rate to unemployment” and “outflow rate from unemployment” you find four items of interest:

(1) more people are staying in the same job for much longer periods,

(2) those leaving a current job can’t find a new job (few find a new job),

(3) those first time job seekers [high school and college graduates and those that have previous left the work force now returning to the work force] can’t find a job,

(3a) number 2 and 3 above is a 25 week average job seeking period [which is double the double dip recession of the early 1980's] which means 25 weeks is the average period to find a job -or- leave the work force (give up trying to find a job) i.e. become the discourage worker,

(4) job “trade up” aka “churn rate”, where a worker takes a higher paying/more opportunity job is very low. This situation, trade-up, is viewed as a better allocation of human resources aka more efficient allocation of human recourses…..and it is very, very low.

What does that mean?  It means two things:

(1) one is viewing a stagnant labor force, people don’t leave their current jobs, few can find new jobs, and the efficient allocation of human resources is very low,

(2) the current recession is not so much about losing one's job [although that did occur at the beginning], it’s much more about those that did/do loss a job not being able to find a new job and those first time job seekers [demographics yielding new labor participants] and or returning to the labor force job seekers not being able to find a job.

Drilling further down into the data and historical data, one finds this trend:

(1)    01/2009 there was somewhere in the vicinity of 142,000,000 employed. (2)



(2)    Total employment peaked in late 2007 at 146.5 million.(3)

(3)    Total employment as of Feb. 2012 Jobs Report were 142, 000, 0000.

(4)    That is, between 01/2009 and 02/2012 there was no change in total employment. (4)



Considering the trend of total employed from the discussion above one might want to consider the labor force participation rate in conjunction with total employment. Here is a definition of the labor force particpation rate:

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=labor+force+participation+rate

Here is historical data on the labor force participation rate [note the bottom of the page you can click to go back into history]:

http://ycharts.com/indicators/labor_force_participation_rate/historical_data

Hence combining/contrasting total employed with labor force participation rates one finds:

(1)    01/2009 employed was 142 million with a labor participation rate of 65.7%

(2)    02/2012 employed was 142 million with a labor participation rate of 63.9%

(3)    Looking at the recent peak in employed of 146.5 million in late 2007, the participation rate then was roughly 65.8%.


Implication and Summary


One then must ask the question of: is the employment/unemployment picture improving, stagnant or actually worse? If total employed is the same in 02/2012 as 01/2009 has improvement occurred? If labor participation rates have fallen between 01/2009 and 02/2012 is this an improvement trend? If the labor force is stagnant is this an improving picture?

Notes:

(1)    http://www.bls.gov/news.release/pdf/empsit.pdf

(2)    http://gregor.us/economics/total-employment-in-the-us-falls-again/

(3)    Ibid.

(4)    Employment Situation Summary Table A. Household data, seasonally adjusted

http://www.bls.gov/news.release/empsit.a.htm

Unemployment Calculations: the “see-you-later-bye” total labor force of the state of Michigan

When determining the unemployment rate the denominator of the calculation is: total labor force. Some media reports of the current/recent decline in unemployment rates as measured by U3 [headline unemployment rate] have pointed out that 5.4 million discouraged workers, relating to some degree to the historically low labor participation rate, has caused the denominator of “total labor force” to shrink hence causing unemployment rates to fall which is causing an unemployment rate which becomes a false measurement.

Stated alternatively, U3 headline unemployment is registering a declining unemployment rate that causes a false picture of the true unemployment picture as one needs to strongly consider the calculation of unemployment, specifically the army of discouraged workers [5.4 million] and the historically low labor participation rate. That during times of robust GDP growth unemployment should actually rise before it falls as the discouraged workers are attracted back to the labor force due to improving economic conditions which means the denominator of the calculation is flooded with new participants causing unemployment to rise is the short and medium term. Hence the current U3 unemployment rate measurement is argued as merely improving, in part, due to people leaving the work force [the rise of the discouraged worker]. Therefore, an improving headline unemployment rate is matched by a rise in the discouraged worker population meaning the unemployment rate yielded by the U3 calculation tells a false story.

Enter the state of Michigan! The denominator discussion above regarding the unemployment calculation goes to a new zenith in Michigan. What if a particular state’s unemployment rate, the calculation thereof , in particular the denominator “total labor force”, yields an improving unemployment rate due to entire households leaving the state at a rate on one every twelve minutes? Yes, a rate of 43,200 households per year leaving the state of Michigan! (1) (2) (3)

Hence the “total labor force” in Michigan is shrinking an incredible rate leading to a shrinking total labor force denominator in the unemployment rate calculation resulting, in part, to an improved unemployment rate. That is to say, the Michigan example goes beyond discouraged workers to the phenomena of “see-you-later-bye” workers.

Notes:


(1) Leaving Michigan Behind: Eight-year population exodus staggers state, The Detroit News, 04/02/2009

http://www.detroitnews.com/article/20090402/METRO/904020403/Leaving+Michigan+Behind++Eight-year+population+exodus+staggers+state?fark



(2) Muskegon County schools lose 800 students as families move out, Mlive, 09/30/2010


http://www.mlive.com/news/muskegon/index.ssf/2010/09/muskegon_county_schools_lose_8.html

(3) Michigan Unemployment Rate Below 10 Percent, Lowest Since 2008, Yahoo News, 12/17/2011


http://news.yahoo.com/michigan-unemployment-rate-below-10-percent-lowest-since-145700889.html







　

　

Upon Further Review: ‘Employment’ is Currently 5 Million Persons Less Than Pre-Recession Peak.

“As the most widely reported rate of unemployment (U-3) has fallen in recent months, people with a political agenda served by painting a rosy picture of the recovery have made considerable noise about this decrease. Their political opponents have responded that one reason for the decline is that the labor force has fallen as more people have given up looking for work, some of them going into retirement sooner than they would have if the labor market had been more robust.

The best way to avoid the parsing and cherry-picking that plague such debates is to look not at unemployment, but at employment. After all, it’s employment that contributes to the production of goods and services and generates earnings for the job holders. Employment is less subject to interpretive ambiguity than unemployment is.

The most recently reported data on private nonfarm employment, for January 2012, show that employment has indeed continued its recovery. Since reaching its current-recession trough about two years ago, it has increased by about 3 million persons. Before starting a celebration, however, we should recognize that private nonfarm employment is still about 5 million persons less than it was at its pre-recession peak in 2008.” - Private Employment Has Recouped Only Three-Eighths of Its Recent Loss, Robert Higgs, 02/19/2012

Link to the entire article appears below:

http://blog.independent.org/2012/02/19/private-employment-has-recouped-only-three-eighths-of-its-recent-loss/

SGS Alternate Unemployment Rate (the measurement you rarely see)

The headline unemployment rate is the U3 measurement which current stands between 8-9%. U3 is argued by many as a political unemployment rate in that the measurement has become an unreliable measurement due to arbitrary adjustments.

U6, also known as the real unemployment rate, stands at 15%. Many people suggest that U6 is a better measurement of unemployment as it includes short-term discouraged workers, marginally-attached workers, and those workers which work part-time as full-time employment is unavailable.

However, in the current economic situation, if one is faced with 5.4 million discouraged workers, an army of discouraged workers, made up of short-term and long-term discouraged, one surely has to consider this standing army of discouraged workers. (1)

Enter the SGS alternate unemployment rate which adds in the long-term discouraged worker. We then find a measured rate of roughly 22.5%. (2)

　

Notes:

(1) http://www.headlightllc.com/avalanchebrief1/

(2)
http://www.shadowstats.com/alternate_data/unemployment-charts

Current Labor Participation Rates: an indicator of an increase in labor participation rates within the subterranean economy?

The subterranean economy, in a nutshell, is non-reported work which means non-reported wages meaning zero tax revenue for state. The subterranean economy is as simple as the neighborhood kid mowing lawns for cash and as sophisticated as organized crime. Keep the subterranean economy in mind for a moment.

Within the study of labor economics is the phenomena of the discouraged worker. The discouraged worker is basically that worker that has given up looking for employment as they feel its fruitless given current employment opportunities. These same discouraged workers are attracted back into the labor force due to improving headline unemployment numbers. Hence discouraged workers can make a headline unemployment rate [unemployment measurement u3] look better than it actually is by leaving the work force and hence the total work force shrinks yet employed remains constant giving the phenomena of the unemployed number shrinking. Conversely, when the discouraged worker is attracted back to the labor force the unemployment rate flattens then increases as a flood of discouraged workers perceive employment opportunity therefore the work force expands In the short run, this expanded work force is not immediately employed hence headline unemployment rises.

Therefore labor participation rates change at the margin depending on how many discouraged workers enter or leave the work force. Today the labor participation rate is historically low. What if the decrease in labor participation rates is merely an indicator of an increase in labor participation rates within the subterranean economy?

Would the failure of, or speed by which the discouraged worker is attracted back to the labor force be a function of and/or an indicator that the “labor” is in fact engaged, albeit in the subterranean economy?

Many people consider the subterranean economy as some abstract and singularly organized crime type of underworld. Nay, nay. The subterranean economy is real and comes in many forms and many levels within those forms. That is to say, it’s a real economy with real dynamics. Further, much like the phenomena of welfare, leaving subterranean employment and entering the surface economy comes with a disincentive in the form of wages after tax (as in welfare, wages in the subterranean economy may exceed employment available in the surface economy, the wages thereof, wages that after tax are below the subterranean economy non-taxed wage, hence rationally staying in the subterranean, as in rationally stay on welfare becomes the choice when the person weighs total revenue after tax: subterranean wage or welfare receipt vs. taxable employed wage after tax).

If one sees a statistical failure of the discouraged worker to be attracted back to the labor force, would that be an indicator that the “labor” is in fact engaged albeit in the subterranean economy? If in fact labor is pervasively engaged in the subterranean economy, one would expect to have some level of rigidity at the margin regarding reentering the labor force and leaving a subterranean wage position (wage rationality mentioned above). Finally, if the subterranean wage position is vacated, and given the current army of discouraged workers numbering in the millions, does another discouraged worker merely fill the vacated subterranean position before entering the surface economy labor force (like a halfway house on the way to the surface economy participation) hence the population of the group "discouraged worker" falls slower than one would otherwise anticipate?

Notes:

(1)Measuring the Non-Observed Economy. http://www.oecd.org/dataoecd/9/20/1963116.pdf

(2)The "underground economy"and BLS statistical data.
http://www.bls.gov/opub/mlr/1984/01/art1exc.htm

(3) What is the Labor Force Participation Rate? http://economics.about.com/od/unemploymentrate/f/labor_force.htm

(4) Santelli: 1.2 Million Fall Out Of Labor Force As Participation Rate Hits 20-Year Low, Real Clear Politics. http://www.realclearpolitics.com/video/2012/02/03/santelli_12_million_fall_out_of_labor_force_as_participation_rate_hits_20-year_low.html










　

And About that Labor Participation Rate and The Supposed Headline Unemployment Rate

"CNBC's Rick Santelli: You know what I said at 8:30 Eastern? We want a million jobs an hour. That's what we want. What we got looked like a good report. I said, 'Let's get the calculator out,' and I did. And so did a boatload of my sources and big blogs that many people read like Zero Hedge. The labor force participation rate, if you look at non-seasonally adjusted, a fresh low going back to April of '83. If you look at seasonally adjusted, a fresh low participation rate going back to December of '81. What does that mean in English? Shrinkage. Shrinkage. 1.2 million people are now not considered unemployed anymore. They just have left the system. So, we need to concentrate on the internals, and eventually we want to watch the fixed income market to see if some of this sets in as people do their ciphering." - Real Clear Politics, 02/03/2012

"A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement." -ZeroHedge, 02/03/2012

The entire articles, Real Clear Politics and ZeroHedge, appear in the links below. Be sure to note the charts in the ZeroHedge article:

http://www.realclearpolitics.com/video/2012/02/03/santelli_12_million_fall_out_of_labor_force_as_participation_rate_hits_20-year_low.html

http://www.zerohedge.com/news/record-12-million-people-fall-out-labor-force-one-month-labor-force-participation-rate-tumbles-

Economic Malaise: simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt

An item that receives little attention is that Keynesian deficit spending and quantitative easing [QE] were both economic theories developed during a period of very low public and private debt. Deploying the theories, simultaneously, in an environment of high public and high private debt within an advanced economy was first tried in the early 2000’s in Japan. The result? Economic malaise.


Fast forward to February 2012 in an advanced economy of the US. What results can one find of simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt?

(1) an 8.5% u3 measurement of unemployment with an army of discouraged workers,

(2) falling home prices which continue to fall,

(3) high public debt morphing into hyper-debt,

(4) a trailing annual GDP growth rate of 1.7%. (1) (2) (3) (4)


The missing element is growth. More importantly growth was attempted by simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt. One can quickly conclude that growth does not occur [Japan and the US now as prime examples] by simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt. The result merely being economic malaise with debt morphing into hyper-debt.

Notes:

(1)
http://www.bls.gov/news.release/empsit.nr0.htm

(2) http://www.propertycommunity.com/forum/north-america-real-estate/21772-nationwide-prices-still-falling-us-analysts-predict-further-decline.html

(3)http://www.denverpost.com/breakingnews/ci_19858627?source=rss

(4) http://articles.businessinsider.com/2012-01-27/markets/30669494_1_gdp-report-private-inventory-investment-real-gdp

　

　

　

　

　

　

　

The 12/02/2011 Jobs Report: An Unemployment Rate Illusion.

The 12/02/2011 jobs report showed the unemployment rate fell to 8.6% from 9%. That’s an illusion. Why? If the economy was improving the unemployment rate would increase. Rather counter intuitive huh?

The reason for both the illusion and the counter intuitive point is related to the calculation of unemployment and the dynamics of the components. In the latest report the denominator shrunk by 315,000 people during the most recent measurement. That is, people seeking a job became totally discouraged and left the workforce [actively seeking a job]. Meanwhile the numerator grew by 278,000 jobs [employed]. Hence with the numerator growing and the denominator shrinking you get an illusion.

Why would the unemployment rate rise if the economy was growing? Growth of the economy would cause the discouraged worker (not currently seeking a job) to be attracted back to the workforce [those actively seeking a job]. Hence with growth, the initial response would be an upward movement in the measurement [unemployment rate] as the denominator would be flooded by people now seeking jobs. Hence the new 8.6% unemployment rate down from 9% is really an indicator of the overall weakness in the economy not a robust economy.

Furthermore, the January 2012 unemployment rate will likely fall as well. Why? Historically speaking, the January unemployment rate is below the preceding December unemployment rate due to an arbitrary statistical decision each January: a statistically significant number of workers are automatically retired by labor statisticians each January. Therefore the denominator is reduced and unemployment arbitrarily looks better in January than the preceding December all things being equal.

Government Sponsored Structural Unemployment?

If one reads the Richmond Federal Reserve essay The Rise in Long-Term Unemployment, Potential Causes and Implications (see link below) and peruses Table 1: Demographic Differences in Unemployment, the following observations are apparent:

(a) educational attainment clearly yields different average unemployment rates. Higher education levels yield lower unemployment rates,

(b) the unemployment rate in the construction sector exceeds 10%. (1)

Unemployment by Industry

By industry, construction has the highest unemployment rate. The unemployment rate in construction is 10.3% and the share, of which, that is long term unemployment is 42.8%.

Educational Needs by Industry

The construction sector educational attainment/needs are exactly what dynamic? Could not find a U.S. breakdown however found this breakdown: Employment Snapshot - Construction, New Zealand Department of Labour. (2) One can see from the New Zealand report that educational attainment/needs in the construction industry is heavily weighted to unskilled labor.

Government Sponsored Structural Unemployment?

If you make the assumption that the construction sector requires many low skilled workers for much of its needs, and you factor in a government induced residential/commercial construction bubble, then was a group of workers [some subset] then induced to skip skill enhancements [vocational school, etc.] to enter a low skill occupation? That is, why absorb the cost of skill enhancement when a relatively high paying job awaits requiring low skills?

Government Failure

Considering the above proposition, and now that politicos point to structural unemployment and the need for government sponsored retraining, is the politico argument in essence a sub-government failure of the the original government failure: government sponsored cheap money bubble along with government induced social engineering schemes related to mortgage attainment leading to construction bubble resulting in structural unemployment? (3)

Stated alternatively, that a rise in structural unemployment, to some extent, is related to other politico failures through the mechanism of government. And, on queue, the fix to the politico failure is another politico program [government sponsored retraining].

Notes

(1) http://www.richmondfed.org/publications/research/annual_report/2010/pdf/article.pdf

(2) http://www.dol.govt.nz/services/LMI/tools/skillsinsight/snapshots/construction/index.asp

(3) http://www.answers.com/topic/structural-unemployment

Saved and Created Just for You: Summer of Recovery Part Three!

Exit Zero

The Real Unemployment Rate in the US Economy currently sits at 16% according the Federal Reserve of Atlanta. (1) Further, no relief is in site for idle Human Capital. (2) Persistent high unemployment appears to be the norm with no current favorable factors contributing to the reduction in the number of unemployed.


Are Government Policies contributing to high persistent unemployment?


Government Policies

Stimulus Plan

An $800 Billion Stimulus plan was rammed through Congress in early 2009. The unread and un-debated Bill had a marquee of urgency. The urgency of passing the Stimulus Bill was to head off Unemployment. That the Unemployment Rate would not exceed 8% if the Stimulus Bill was immediately passed by legislatures and signed by President Obama.

Although the Stimulus Bill was unread and un-debated within Government, many outside the Government in the Private Sector did debate the Bill. Warning signs went up that the Stimulus Bill was Social Engineering, Financed Wealth and Income Transfers, and in the Macro Economic sense, not an engine to create Employment. That the Stimulus Plan was full of pork, ear marks, and based on a Political-Political design rather than a Political-Economy design.

One merely needs to look at the results to see the warning signs were correct.


Reasons for the Failure of the Stimulus Plan


Why is the American Recovery Act such a Spruce Goose? Why is the American Recovery and Reinvestment Act the Spruce Goose of all stimulus plans ever concocted? Surely $800 Billion of borrowed money will create jobs?

First of all, Keynesian Government Deficit Spending (Fiscal Stimulus) is suspect at best with very mixed results/track record. However, if one is to deploy Keynesian Government Deficit Spending the best results of past stimulus plans of this label are based on Infrastructure Spending. Building and repairing Social Overhead Capital does in fact create temporary employment and a public asset is either created or repaired.

However, only a small portion of the Stimulus Plan was based on Social Overhead Capital ($80 Billion of the $800 Billion). Why? It has to do with the designers of the Stimulus Plan. Who designed the Stimulus Plan? Very good question. Many parts of the design were concocted by the Tides Foundation in association with The Center for American Progress.(3) You mean to say Congress in association with Public and Private Sector Economists didn't design the entire plan? Correct.

The Warning Flags were real.

The Tides Foundation and The Center for American Progress influenced the Stimulus Plan? Who are they? These two organizations label themselves as liberals or "progressives". Others label them as Socialists as many of the members of these two groups are Socialists. (4) Many past members of the Tides Foundation and The Center for American Progress now hold positions in the White House.

Socialists have a grand track record in Social Engineering aka wealth and income transfers. Socialists on the other hand have no track record regarding income, wealth, and job creation. Beginning to ring a bell?


Hence we have transfers of borrowed Stimulus Funds arriving at the Public Sector that produces virtually nothing. Those transfers go to pet projects (pork barrel spending) that are dubious job creators. More transfers go to Social Welfare Programs. Meanwhile, on the Federal Level employment is expanding based on borrowed Stimulus Funds. Expanding a sector that produces little.



Liberal Economists believe that transfers of funds to Private Welfare Programs create a situation where the transferred funds will immediately be spent (a component of Social Engineering). The theory is based on the notion that low income or no income recipients will spend 100% of their funds and save zero. That 100% of the transferred funds will be spent hence creating a multiplier effect thus stimulating the economy. However the theory has a major flaw: low income recipients generally spend their funds on "staples". Low income earners do not buy new vehicles, contract for a home to be built, invest in new business ventures, and other dynamic economic activities that truly have multiplier effects.



The tax cuts associated with the Stimulus Plan are doomed to fail. Why? Any positive economic effect associated with Tax Reductions is closely associated with "expectations". That is, temporary tax cuts have basically no effect as consumers and businesses realize the short term duration on any additional disposable income and hence make short term type purchases that match the short duration of additional disposable income. Whereas long term tax cuts (e.g. reducing Marginal Income Tax rates for the next 10 years) causes consumers and businesses to make long term purchases such as home, vehicles, and capital investment in business as the consumer or business matches long term purchases to the long term increase in disposable income.



Meanwhile, tax revenues at all levels of government are plummeting at historical rates. The answer to plummeting tax revenue? Taxes are increasing on the State and Local levels to support the bloated size and scope of these governments. The increased taxes then reduce disposable income of consumers and businesses which consequently reduces Private Sector Demand for goods and services.



On the Federal Level tax revenues are plummeting as well. However, the Federal Government continues to spend at unprecedented levels (spending increasing at an increasing rate). Spending and tax revenues are on a course of complete divergence. The result is a swollen deficit.



Enter the non-renewal of the Bush Administration across the board tax cuts. Soon all tax payers will face an across the board tax increase. This creates the expectation of long term higher taxes and consequently changes consumer and business consumption behavior (the opposite behavior of long term tax cuts mentioned above).



However, the specter of even more tax increases are affecting consumer and business behavior. The spending increases by the Federal Government, the constant need to borrow funds by the federal government for financed spending such as the Stimulus Plan and general revenue needs, the specter of higher energy taxes through Cap and Trade legislation, talk of a Value Added Tax as an additional tax, and finally the increased tax burden of Socialized Medicine are causing consumer and business long term spending behavior to be paired back.



Oddly the Consequences are Known



The consequences of the above mentioned Government Behavior is well known. Huh? The lessons of the Great Depression have been enumerated by economists through empirical study. Thousands of empirical studies have concluded the errors of the Great Depression:

(1) Keynesian Government Deficit Spending (fiscal stimulus) creates temporary jobs creating temporary stimulus. When the deficit spending ends, the temporary jobs end as well as the temporary stimulus,

(2) rising taxes, rising regulation, and increased government debt reduces Private Capital Formation which is directly related to Private Sector Job Creation,

(3) rising taxes reduce Private Sector consumption,

(4) repeating 1-3 above, over and over again, as was done in the Great Depression, yields the same result: continued recession.


Milton Friedman's Fourth Category of Spending


Milton Friedman basically said when you spend someone else's money, you have no rational interest in either value or quality. (5) (6) In other words, when the government taxes you, brings in the revenue, when the time comes to spend that tax revenue, value and quality are Job 57. Hence Keynesian Government Deficit Spending (Stimulus) has inherent value and quality problems.



Enter "Jobs Saved"

In the field of Manpower Economics and Labor Economics you are either employed or unemployed. Yes, you either have a job or you don't have a job. Sure, you can be underemployed, structurally unemployed, part-time employed and a multitude of sub-categories of employment and unemployment. However, at the end of the day, you either are employed or unemployed.


Heard the phrase "Jobs Saved"? (7) Guess what? No such term or statistic or measurement exists within the field of Economics. Huh?

When the Spruce Goose of all stimulus plan fell on its fat little porker , income transfer, wealth transfer face, the Obama Administration, through the Council of Economic Advisers, created the ultimate Political Speak Phrase "Jobs Saved".

Jobs Saved is a non-statistic statistic. Its unmeasurable, un-comparable, and basically fantasy. Why did they create "Jobs Saved"? One must remember that the $800 Billion stimulus plan, if passed immediately, would then cause unemployment to top-off at 8%. When the 8% target was unmanageable, enter "Jobs Saved". (8)

Jobs Claim

The employment picture created by the stimulus plan is so bleak that the Obama Administration has begun to grab at straws. "30,000 jobs created" was the reported headline and the Obama Administration lauded the report (9). Unfortunately 30,000 is an anemic number of jobs and better yet the report was refuted, called "way off the mark" a week later. (10)



Subsequently the White House announces the Stimulus Plan saved 650,000 jobs (jobs saved non-statistic statistic yet again). (11) Somehow borrowed money, sent to the States on a temporary basis, has saved jobs? Or has borrowed money been used by State Governments to subsidize budgets that were already out of control?



Please remember, no jobs were saved. You are either employed or unemployed. However, take a closer look at the report and what jobs are referred to within the report? Public Sector jobs. (11) Hence Government Workers remained employed based on unsustainable State Budgets temporarily funded by borrowed money. One might also point to Government Workers, unionized in many states, are predominantly supports of the Obama Administration.

Meanwhile Back in the Unemployment Line

Creating the phase "Jobs Saved" and lauding a phony job report or pointing to borrowed money propping up unsustainable State budgets funding Government Jobs doesn't really help the unemployed.

What is the Jobs outlook for the Unemployed? Not too bright. (2) (8) (12)

With the average work week at 33.2 hours the average employer has plenty of room to expand the utilization of current employees before any expansion of total employment. (8)

If demand does expand, and employers do increase the average work weeks to 40 hours, an employer will opt for over time for the current work force rather than expand the number of workers. Why? The employer wants to be certain that any increase in demand is sustainable and not a false signal. (13)

An employer also realizes that the laid off workers were the most marginal workers. In other words, employment was reduced at the margin, leaving the most productive workers retained. It can be argued some workers laid off were in marginally profitable lines of business while other workers were laid off from core profit business. The marginally profitable line of business would have to show even more robust sustainable growth before human capital is added back in comparison to employment in a core profit business.


Gross Domestic Product (GDP) can Rise and High Unemployment can Persist?

GDP can grow, however, if human capital is under utilized (current 33.2 hour average work week) a slack or lag occurs in labor markets and persistent high unemployment can exist. The slack or lag is elongated by the determination of employers, as mentioned above, regarding GDP growth and the ability of GDP growth to be robust and sustained. Hence GDP can show positive results while unemployment can remain persistently high.

What if Demand grows in an anemic fashion? That is referred to as a Jobless Recovery.

Exit Zero

If you are currently unemployed, you have reached Exit Zero on the unemployment highway. Exit Zero is the last exit before unemployment Armageddon.


Discouraged workers are increasing at an increasing rate (those giving up on finding a job). The average length of time unemployed workers have been drawing unemployment benefits is at an all time high (week after week after week these workers can not locate a job).

The Stimulus Plan is a bust accompanied by made up statistics and made up economic criteria. Private Capital Formation leading to private sector job creation is anemic. Rising taxes are depressing consumption dynamics.

The average work week at 33.2 hours means employer will utilize current workers before hiring new workers.

Welcome to mile marker Zero. The zero job creation mile marker on the employment highway. Welcome to Exit Zero.














(1) http://www.breitbart.com/article.php?id=CNG.4452bed82adf3124e5884678e236d7fb.361&show_article=1


(2) http://www.politico.com/politico44/perm/1009/leveling_off_b1e35f37-54bc-4c12-91df-0c9e48cf6403.html


(3) http://www.foxnews.com/story/0,2933,535284,00.html

(4) http://www.foxnews.com/story/0,2933,554680,00.html

http://seekingalpha.com/article/169983-the-lagging-indicator-how-unemployment-and-gdp-can-rise-simultaneously?source=commenter

(5)http://bartsblogg.blogspot.com/2008/10/milton-friedman-4-ways-money-is-spent.html

(6)http://www.reddit.com/r/Economics/comments/9lldr/milton_friedmans_classic_4_ways_to_spend_money/

(7) http://online.wsj.com/article/SB124451592762396883.html

(8) http://www.ft.com/cms/s/0/b3565084-bc02-11de-9426-00144feab49a.html?catid=171&SID=google

(9)http://www.usatoday.com/money/economy/2009-10-15-stimulus-jobs_N.htm

(10) http://today.msnbc.msn.com/id/33522856/ns/business-stocks_and_economy/

(11) http://www.msnbc.msn.com/id/33548535/ns/business-stocks_and_economy/

(12) http://scottgrannis.blogspot.com/2009/10/state-of-union-is-bleak-but-there-is.html


(13) http://seekingalpha.com/article/169983-the-lagging-indicator-how-unemployment-and-gdp-can-rise-simultaneously?source=commenter

Unemployment: Peanut Butter and Jelly

Of all the economic trends, Unemployment seems the most important Political-Economy aspect at this point in time. Persistent high unemployment historically leads to a Political Anger Factor that unseats the powers-that-be.

Not discounting any other economic indicator, trend, or consequence, Unemployment rises to the top regarding importance. When John/Jane Q. Public can’t even put peanut butter and jelly on his/her table, everything else is of no Political-Economy importance.

If you were unlucky enough to live through the 1970’s, with price controls, increasing taxes, expanding government, over regulation, hyper inflation, 21% mortgage rates, 16% CD rates, and the drying up of consumer credit…..Unemployment was still the number one concern of households during the 1970’s.

Go back to the 1930’s. Unemployment was the number one concern.

Back to the future, the 06/2009 published unemployment rate is 9.5%. The true rate is likely 15% if you count the Self Employed and contract labor.

Lets call the collective attitude of the unemployed the “Political Anger Factor”. Historically the Political Anger Factor exponentially rises after unemployment reaches 10%. The Political Anger Factor is contagious as well. Those remaining employed begin to wonder how secure their job is given the large number of unemployed . That is, the Me-Next-Factor, which is the cousin of the Political Anger Factor, creates economic uncertainty.

What about the direction of Unemployment and the Political Anger Factor and Me Next Factor? On the rise?

Human Capital Unemployment is directly related to Capital. One must remember that Capital is unemployed at this point as well.

In the 1930’s, several of the lessons of the Great Depression never mentioned by Romer, Bernstein, Goolsbee and the gang are:

(1) Federal, State and Local taxes increased on consumers and businesses,

(1a) the increased taxes depressed Private Capital Formation,

(1b) Private Capital Formation leads to Private Sector jobs.

(2) Government Regulation increased significantly,

(2a) Government Regulation then affected business profit at the margin.

Hence Cap and Trade (a tax), Socialized Medicine (a tax), Additional Regulation (a cost), add to unemployment. Then the specter of increased Federal, State and Local taxes add to an employment freeze or employment reduction by employers. Increased taxes lower consumption by both consumers and businesses further accelerating unemployment. Increased taxes inhibit Private Capital Formation. That is, Private Capital Formation leading to Private Sector jobs is under assault.

Of course we do have the Stimulus Plan. The 800 billion, 100% financed by-the-way, Stimulus Plan based on Political-Political rather than Political-Economy. The most dismally designed Stimulus Plan of all time. You know, the Stimulus Plan that needs immediately recalled.

If one buys into the idea of Financial Sector Systemic Risk and the ensuing cascading effect, then one must understand that rising taxes and regulation causes the same cascading effect within the realm of Unemployment.

Hence the Social Policy (it can’t be characterized as Economic policy as its not based on Economics) coming from Political Leaders is creating an accelerated unemployment rate that will likely level off into a high and persistent unemployment rate. Hence the Political Anger Factor will rise significantly and persist.

A high persistent Political Anger Factor caused by high persistent Unemployment has historically unseated the-powers-that-be.