The Obama administration announced “Recovery Summer” in June to highlight the expected gains in jobs and economic strength resulting from the stimulus. Well, maybe next summer.
Initial estimates from the Department of Labor suggest the economy shed a whopping 131,000 jobs in July while employment for the prior two months was revised down by 97,000 jobs. The unemployment rate held steady in August at 9.5 percent despite a drop in employment, because the number of people in the workforce also declined as workers apparently gave up in the face of persistent unemployment.
To an important extent, the wild swings in employment in recent months are due to the decennial census, which led to a steady but temporary rise in government employment, a spike upward in government employment in April, and now two consecutive months of downward plunges, resulting in 454,000 fewer government jobs. In the private sector, job growth increased smartly in April and May but has since dropped to a very anemic three-month average growth rate of about 51,000 jobs.
This data confirms once again that the $862 billion Obama stimulus legislation — as well as all the subsequent budget-busting legislation Congress has enacted under the rubric of “jobs” bills — has failed, as expected.
The weak jobs data also mean the Obama jobs deficit — the difference between current employment and the jobs Obama promised to create by the end of 2010 — now stands at 7.6 million workers. That’s 7.6 million fellow citizens who were promised jobs if Obama was elected and his economic program instituted, and who are still out of work. Unfortunately, continued weakness in the economy indicates they will continue to be out of work for months to come, perhaps as long as Obama adheres to his ideology instead of opting for proven solutions.
Obama’s Failure to Make Good on Jobs Promises: The president’s original target for jobs creation, set during the 2008 fall campaign, was 2.5 million jobs. But as employment fell at the end of 2008, he increased the employment target to 3.5 million jobs. At the time, employment stood at about 135.1 million, according to the DOL’s most commonly used measure. This establishes the Obama jobs target for December 2010 at 138.6 million. It also establishes a basic trajectory for employment that the economy would need to approximate to hit that target.
According to the latest jobs report, total U.S. employment stood at 130.2 million in July, which means the cumulative Obama jobs deficit stands at 7.6 million (see graphic).
Accompanying his jobs promise, the president also emphasized accountability and measuring his presidency by results. By his own official forecast and by his own standard, the Obama jobs deficit attests to the failure of his policies.
Why Has the Obama Stimulus Failed? The centerpiece of Obama’s short-term stimulus program was the $862 billion in poorly targeted tax cuts and ineffectual spending increases he signed into law in February 2009, which has since been supplemented by a number of smaller budget-busting “jobs” bills, including the most recent, a $26 billion state aid package. Obama had one big shot at really helping the economy and he took it, holding nothing back. As short-term economic stimulus, it was doomed from the outset because it was based on the erroneous assumption that deficit spending can increase total demand in a slack economy.
The theory underlying Obama’s stimulus was that the economy was weak because total demand was too low. The suggested solution is then to increase demand by increasing government spending, exploding the deficit in the process.
This theory of demand manipulation through deficit spending ignores the simplest of realities: Government spending must be financed. So to finance deficit spending, government must borrow from private markets, thereby reducing private demand by the same amount as deficit spending increases public demand. In effect, the theory says that if I take a dollar from my right pocket and put it in my left, then I’m a dollar richer. No wonder it always fails.
Obama Tax Hike Weakening Job Creation: The federal government cannot stimulate the economy in the short term by increased borrowing and shuffling demand across the economy through wasteful deficit spending, but government can stimulate the economy by improving incentives and the general economic environment. Unfortunately, Obama’s promised tax hike is already draining the vitality from the economy and job creation.
Businesses invest when they are confident enough to take risks in pursuit of opportunity. Individuals and businesses across the nation see tremendous opportunities for starting new businesses, investing, hiring new workers, expanding into new markets. Many are holding back, however, due to concerns about the economy, while others are holding back due to concerns about the threatening policies from Washington, most especially the tax hikes Obama promised and Congress intends to deliver.
For private-sector job creation to accelerate to bring down the unemployment rate and the Obama jobs deficit, step one is for Washington’s job-destruction machine to take a long vacation. Facing such a weak economy, the intentions of Obama and his congressional allies to raise tax rates on small businesses, on capital gains and dividends, and through the death tax go well beyond ideology to economic policy malpractice. Obama should call on the Congress to forgo all tax hikes — especially those on work effort, small businesses, savers, and investors — at least until the economy has created enough jobs to return the country to full employment.
– J. D. Foster is Norman B. Ture Senior Fellow in the economics of fiscal policy in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.