The economy isn’t recovering as fast as it should because Obama, at least according to the Republicans, has the wrong plan.
The evidence is that the unemployment rate is still too high. Whether that is the published unemployment rate or the real unemployment rate doesn’t really matter. I think that we can all agree that there aren’t enough jobs for the number of people who would like to work.
Obama says that the major drag on the economy right now is the continued downsizing of government at the state and local level. This is primarily teachers and first responders (fire and police). The data support his claim even though he was criticized for the observation.
Obama’s plan is to funnel more money short term to states and cities to help them retain more of these employees and invest in infrastructure to create construction jobs. The hope is that this growth in both private and public sector employment will improve state and local revenue to the point that they can retain more of these public sector workers when the federal money runs out. We are already seeing this sort of revenue growth here in Michigan as a result of the robust rebound of the auto industry, though the Republican governor is unwilling to use this increased revenue to refund his education cuts.
What is Romney’s plan?
Here’s what we know so far.
Romney last September said that his administration would create 11.5M jobs in his first term by growing the economy at a 4% rate. The problem is that his plan has no math associated with it to demonstrate how he plans to create those jobs. Is he, for example, claiming credit for all of the jobs that economy creates if it expands at a 4% rate, or just the jobs that his policies would add over and above the jobs that would have been created anyway if his policies were not enacted?
Here’s how the experts across the political spectrum responded.
“Nowhere in the 160 page plan could I find a stated job creation number,” wrote Rebecca Thiess of Enterprise Policy Institute. “The math doesn’t just appear to be fuzzy — it appears to be nonexistent.”
“It is a plan from the Republican candidate for president designed to maximize corporate profits. What it doesn’t do is help the middle class or create jobs.” David Madland of the Center for American Progress
The Wall Street Journal called Romney’s fifty-nine-point economic tome “surprisingly timid and tactical considering our economic predicament.”
Last month, in response to the poor May jobs report, he did offer more specifics. Those included:
- Taping our energy resources to “put a lot of people to work in the energy sector.”
- Repealing Obamacare, which is “scaring small businesses from hiring.”
- Balancing the budget so people know “investing in America is going to yield a return in dollars worth something.”
- “Open(ing) up new markets in American trade.”
- Revamping the National Labor Relations Board and lowering tax rates on employers, both of which would make it easier to hire people.
Economists were just a skeptical about this plan as they were his original plan.
“On net, all of these policies would do more harm in the short term,” responded Mark Hopkins, a senior adviser at Moody’s Analytics. “If we implemented all of his policies, it would push us deeper into recession and make the recovery slower.” That’s mainly due to the deep cuts in government spending that would be required to balance the budget. The CBO also supports this conclusion that even implementing the $500B+ in planned cuts currently on the books could drive the economy into recession and those cuts are far short of what would be required to balance the budget.
We have also already heard, as a result of the oil pipeline controversy, that all the experienced oil and pipeline people are already working and even the construction job estimates may be inflated.
Romney hasn’t said what new markets he would open beyond what Obama is already doing. The balance of trade under Obama has been declining because of increased exports and cheap oil. He has also outlined a future based on increased domestic energy production which could turn the US into a net exporter. Future growth of trade for the next couple of years will likely depend on how quickly Europe recovers more than anything else. That’s because slowing growth in Europe will affect the rest of the world’s ability to buy too.
Romney has provided no data which suggests that the Affordable Care Act, deficits, NLB regulations, or lower tax rates will spur hiring.
In fact the data suggests exactly the opposite.
According to analysis by Moody’s commissioned by the Fiscal Times, US businesses are more profitable over the past few quarters than they have been in the last 50 years.
“Giving more tax breaks to corporations that are awash in cash is not going to lead to anything,” said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University after serving as President Clinton’s chief economic adviser and top economist at the World Bank. “It’s a lack of demand that’s really impeding investment.”
Lack of demand is the result of unemployment, underemployment, and personal incomes which have lagged corporate profits. Recent data supports this claim that middle class families are reluctant to spend because they are still recovering from the 40% loss in net worth that they suffered during the recession. It is middle class consumers, not corporations or wealthy individuals, which drives our economy.
What is even more troubling is that the percentage of corporate profit going to employees as a whole is dropping. That’s good news for investors but bad news for workers and our economy. That means that it is going to take middle class families who rely on salary rather than investment income, longer to recover than it might have in past recessions because corporations are keeping a higher percentage of the profits they generate for themselves.
Aaron Smith, a senior economist at Moody’s Analytics, said, “What is clear going forward is that in the absence of debt and government support, we’re going to need the labor share to stop declining if consumers are to regain their prowess as drivers of the U.S. economy.” In other words, without direct government stimulation to drive up employment which as we get below 8% unemployment levels will also drive up wages, the current corporate position on wages points to continued slow growth.
The Romney jobs plan is a fiction. His economic recovery plan will not only fail, it will make things worse because it will continue to shrink the public sector workforce that is currently dragging down the recovery.
The Republican supply side solution is based on several false premises. The first is that corporate profits are the driver for employment. The second is that Obama’s policies are suppressing corporate profits. Corporate profits are the highest they have been in recent history and we are still struggling with high unemployment. The current economic conditions have created what the Republican plan is supposed to deliver (smaller government and higher corporate profits) AND IT’S NOT WORKING.
The REAL solution is to invest both in public and private sector hiring to stimulate demand which will ultimately grow the economy. The CBO essentially said the same thing in their most recent report. Keep taxes low and don’t reduce the size of government any more, and the economy will grow at 4% all on its own. That plan comes with a risk, however, because it will add to the debt and adopting a rational program that reduces the debt by restructuring Medicare and to a lesser extent Social Security appears to something he problem is that neither party seems willing to address.
Next up: A look at the current recovery in a little more detail