What makes a boom different from a bubble? The answer is sustainability. Both booms and bubbles represent periods of rapid expansion: The difference between them is that a bubble is hollow and a boom is solid. Was the explosive jobs growth of the final Clinton years a boom or a bubble? How about the rapid but not explosive jobs growth this year under Bush?
In order to answer these questions, BuzzCharts has created a new employment-related statistical indicator — the jobs sustainability ratio. Here’s how it works: BuzzCharts has taken the quarterly profits as calculated by Economy.com and the rise in profits from quarter to quarter, and used those numbers to create a ratio which serves as a way to measure the sustainability of new jobs created during the same quarter. In other words, the jobs sustainability ratio is the average amount of new profit backing up each new job on a quarterly basis.
For establishment economists this statistic is very confusing, but for actual real-world entrepreneurs nothing could be clearer. Businesses are able to hire and retain people only to the degree that these new people generate additional profit. The jobs sustainability ratio tells us, therefore, the “solidness” of the jobs that were created at the end of the Clinton boom compared with the jobs that are being created now.
The numbers are dazzlingly clear: During the late 1990s, rapid jobs growth was supported by weak growth in profits. Not so under Bush. In fact, in the first three years of the Bush administration, each new job was backed up by an average increase in profits of $285,000. Unfortunately, during the last three years of the Clinton administration each new job was backed by an average decrease of $28,000. It’s no wonder that those jobs did not last long and were entirely swept away by the first recession that appeared.
Ironically, the fact that jobs are not appearing at a hyper-growth rate during this current recovery demonstrates most conclusively that this is boom, not a bubble.
– Jerry Bowyer is the author of The Bush Boom and an economic advisor to Blue Vase Capital Management.He can be reached through www.BowyerMedia.com.