Private-sector hiring during July 2011 overcame cuts in state and local government jobs to yield 117,000 net new jobs. But the unemployment rate remains stubbornly above 9 percent. The economy is not yet out of the hospital, and employers and investors know that. Their recent exit from stock markets is attributed to weak data on the consumer and manufacturing sectors. But that weakness, in turn, could be traced to the disappointing process and outcome from protracted budget negotiations. It does not bode well for next month’s jobs report.
What must happen for the economy to recover and employers to begin hiring? There is only one answer: Lawmakers must chart a stable policy course with low taxes to create a competitive business outlook. But the just-concluded budget deal only increased market uncertainty.
Lawmakers have failed to deliver a stable policy environment. Protracted budget negotiations demonstrated their dysfunction, and the final budget deal delivered a much smaller budget consolidation than investors would have hoped for — one that excludes changes to major future-deficit drivers Social Security, Medicare, and Medicaid.
Market participants know full well that the more we postpone rationalizing entitlement programs, the more firmly rooted will future tax increases become. The substantial market decline (over ten percentage points) that occurred since it became clear that a sizable budget deal won’t be achieved reflects that concern. Moreover, high policy uncertainty continues, because the precise composition of budget cuts has yet to be determined by the super-committee constituted under the deal, which may or may not address the key deficit drivers.
Last month’s better-than-expected job gains may reflect earlier business expectations that the budget deal will address the nation’s over-spending problem substantively. It will be no surprise if next month’s jobs report reflects employers’ disappointment with the budget deal we actually got.
— Jagadeesh Gokhale is a senior fellow at the Cato Institute in Washington, D.C.
Raymond J. Keating
There’s really no secret as to what’s needed to get economic and employment growth back on track: substantive and permanent tax and regulatory relief, along with free trade and sound money.
Specifically, personal-, corporate-, and capital-gains-tax rates need to be reduced to boost incentives for working, investing, and entrepreneurship. The death tax needs to go away to aid investment and family businesses. Along with such tax relief must come an unwinding of the massive government expansion in recent times.
Costly and ineffective rules and mandates have to be eliminated, and all regulations that go into effect must be approved by Congress. The U.S. also needs to lead the way in knocking down governmental barriers to trade. And the Fed must be focused on maintaining price stability.
Unfortunately, we’ve gotten the exact opposite over the past three-plus years, and hence the current mess.
For example, Obamacare inflicts new taxes and regulations. Dodd-Frank and other post-2008 regulatory moves regarding the financial industry raise costs and reduce credit availability. The president continues to push for higher taxes on high-income earners, who happen to be the entrepreneurs and investors needed to spur growth and job creation, while the spending binge of the past four years threatens still-higher taxes down the road. And though he talks up exports and has inched forward on trade deals with South Korea, Panama, and Colombia, the president remains largely uninterested in expanding opportunity through reduced trade barriers. Meanwhile, the Bernanke Fed is lost in a futile effort to perk up the economy through monetary policy, thereby ignoring its ultimate responsibility to fight inflation.
Unfortunately, this means we are stuck largely trying to stop bad policy measures until seeing the outcome of the 2012 elections — which will dictate whether we slip further into a Europe-style economy of slow growth and little job creation, or return to a vibrant, entrepreneur-driven U.S. economy.
— Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council, and author of Warrior Monk: A Pastor Stephen Grant Novel.