Today's job report was, to put it simply, plain ugly.
http://www.bls.gov/...
Nonfarm payroll employment was essentially unchanged in June (+18,000), and the unemployment rate was little changed at 9.2 percent, the U.S. Bureau of Labor
Statistics reported today. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down.
But there really is more to the story
More info here:
http://www.bls.gov/...
http://www.bls.gov/...
Let's look at a few things:
1. The jobs number was a big disappointment, but not a big surprise. Weekly unemployment claims have been elevated for some time now indicating the jobs picture is not improving. We also see a continued dynamic of mediocre private sector employment (mostly health care) being offset somewhat by government cutbacks.
2. The jobs picture is even worse when you consider the amount of rocket fuel the economy has received. Interest rates are near record lows, government stimulus amounts to 10% of GDP, and we have been in the middle of QE2. Yet ... horrible jobs numbers.
3. The picture is even worse when one compares the situation to Canada which created 28,000 jobs last month - more than the US, despite having an economy 1/10 the size, and facing the headwinds of an appreciating currency.
So what gives?
Past:
1. Let's remember this whole mess started with Reagan expanding deficits and starting a policy of growth through debt.
2. Under Bush the debt bubble reached its peaked ... then popped.
3. As a result there is a huge debt burden (with a lot of underwater mortgages) that makes it hard for consumers to go out and buy like they did when they had less debt.
4. Arguably Obama's biggest mistake was hiring Larry Summers. The whole economic team, led by Summers, continue th policy of bailing out bankers and the moneyed elites by taking socializing their losses and putting them on the government books. This meant instead of debt being extinguished and a base set for a recovery, debt was just shifted to the public sector - the burden remains and continues to grow.
5 Canada is an interesting comparison. During much of the nineties and naughties Canada ran budget surpluses (like Keynes said to do during good times). This gave it room to run deficits during tough times. Canada also regulates its banks quite hard, and in addition Canada has not resorted to printing money.
Future:
Everyone wants to know what to do. Fine but lets first realize than a lot of mistakes were made and that there is NO easy way out. Reality really has not yet hit. The prevailing thinking seems to be if we stimulate enough and hope and pray, and wait, things will get better. Japan (20 years after a credit bubble popped) is proof this may not happen automatically.
What is needed is a massive and innovative move to restructure the economy. If you have your foot to the floor and the car is still not going anywhere, changing the wiper blades and putting in new spark plugs will not help. You need a complete engine overhaul. to wit: (in a very slimmed down format)
1. The first focus has to be cutting defense (yes, before touching social security). And I don't mean trimming, I mean slashing. Excessive defense expenditures in relation to other nations, is a major impediment to future growth. We are talking of a cut of as much as 50% over a relatively short period.
2. Health care: Another drag versus other nations. The US spends 16% of GDP on health care. No other nation spends more than 9%. The US health care system also distorts the job market and results in unnecessary bankruptcies. (Single payer is obviously the way to go, but political realities for now preclude this).
3. Energy. The US sends about $1 billion a day out of the country (half the trade deficit) to pay for imported oil, much of it wasted by poor fuel efficiency vehicles. On a national basis this is simply no longer affordable. Conservation is the fastest and cheapest way to cut this, with higher gas taxes also part of the solution. Long term a Manhattan style project is required to develop alternate energy solutions - and I am talking spending hundreds of billions on research.
4. Debt. Until the debt burden is reduced the recovery will not happen. We have to stop trying to pump consumption with debt. It is simply not sustainable.
5. Equality. Though more of a state issue, equality in education is essential to building a stronger future. All students require at a minimum a relatively equal funding formula. No more high income areas good schools, poor area lousy schools. International tests show that much of the poor US performance is down to inequality.
6. Taxes. Taxes, especially on the rich need to increase.
there is much more but ...
Unfortunately the elephant in the room that no one wants to address (political suicide) is that the US can no longer live as "high on the hog" as it did during the naughties (the house can only be used as an ATM for so long). There is a lot of pain ahead. Unfortunately just waiting for things to get better and simply throwing money every which way, will not work.
A major restructure is required.
Oh and every time you hear a GOP person, or a business person say ... "just get the government out of the way" ... remind them that without the government the banking system would have collapsed and all bank shareholders and bondholders would have been wiped out, and without the government spending and borrowing 10% of GDP those wonderful business profits would disappear as fast as an ice cube on a hot tin roof. Right now many businesses owe their continued existence to the efforts of government. Maybe its time the government and dems started pointing that out, instead of sitting back and nodding.