The Cheers Ended Suddenly

Yesterday the monthly “jobs report” issued.  Not so great for President Obama.  It is true it could have been a lot worse and some may argue it was not bad and really more of the same slow job growth.  The problem is that the news media, most likely looking to keep the public with the impression that the race is close, jumped on the 86,000 new jobs announcement as if it were the end of the world.

Mitt Romney and his Republican colleagues jump on the report as if it were red meat.  “See, just what we have been telling you, President Obama’s policies have failed.”

Romney said he knew how to fix it, create new jobs and lower the deficit, so vote for Mitt.

The old saw is still playing the same tune.  It may be true that a President Romney could implement a domestic policy that created more jobs.  No one really knows.  But with what Romney has said to date, there is no special reason to believe that.  The 2008 recession and its aftermath is and was different from those in the past.

All economies have certain characteristics.  They expand and as they expand, more and more entrepreneurs invest to make more money.  In the process they add both debt and capacity.  Soon one of two things happen.  (1) The entrepreneur (read jobs creator) can’t meet his debt payments because there is over capacity.  Or, (2) the economy slows, either domestically or globally and the demand for the entrepreneur’s goods or services declines, and yes the business person can’t meet his debt payments.

If these effects are moderate, we call it a “contraction”.  There could be layoffs and for sure overtime will be reduced or eliminated.  The result, workers will have less money to spend and less spending creates less demand for other goods and services.  This may cause further job loss as service industry business experience shrinking demand too.  Often, however, contractions are short lived and can be cured with interest rate changes or the announcement of some new government investment.

If the slow down is more severe than a contraction, we normally call it a “recession”.  For recessions, the typical response is temporary lowering of  taxes and sharply increasing government spending.  If private sector cannot stimulate the economy, government spending usually has.

Now fast forward to today.  Romney has said that he is committed to reducing the debt so taken at his word, there is no borrowing to finance increased government spending, or for that matter, lower taxes.  So what really is his plan?

(Does Romney think job creators will add workers just because they get a tax break?  Don’t you think they will put the tax break in their pocket, say thank you and wait for new demand?)

A facet of the 2007 economy that is often overlooked is that it was an inflated one.   The US was living off the fruits of a “housing bubble” and a financial sector gone wrong.  (Figures indicate that 30% of all corporate profit in 2007 went to financial sector firms).  Remember these firms make nothing and are more similar to large betting enterprises.

So, unless the US wants to cycle back through the excesses of 2007’s and quickly back into a recession, the economy needs time for the “silent hand” to reallocate our resources into other productive uses.  If one believes in capitalism, that will happen, but it won’t happen with the snap of your fingers.

Looking at the unemployment figures, one could also see them as positive, that is more jobs were being created than were being eliminated.  No part of the US economy seems to be running away so the risk of another bubble does not appear near.  But there were other economic signals that were not talked about.

Namely the stock market has finally reached a level above 2007.  Yea, isn’t that good for the top 2%?  Actually it has positive benefits for a lot more people, and especially those who hold retirement plans which own securities.  With the market up, most 401Ks hold a lot more wealth than just three years ago.  For many this is a very profound and positive event.

Jobs are important just the same.  But for the wealth and security of all Americans the equation is much more complicated.  When the Bush Administration’s policies drove the US economy into the gutter (and dragged the rest of the world with it), not only did a lot of people lose their job but even more lost enormous wealth in the retirement plans.

Consider cities and States where “defined benefit” plans are frequent.  Public employees may not have thought there was a problem.  For the plan administrators, however, the defined benefit obligation became a threat to the solvency of the city or State.  There is much more to the economy than just the unemployment number.

If Mitt Romney is going to make his case that he will be better at not just creating more jobs, but making life better for Americans, he will need to spell it out.  As of now all we know is what he asks us to believe he can do.

 

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2 Comments on “The Cheers Ended Suddenly”

  1. fatherkane Says:

    In past elections when Romney gave details of his policies – he lost.


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