September 5, 2009

Going Right Where They Sent Us

Justin Katz

So the national unemployment rate is 0.3% shy of 10%, and economists are debating when, not whether, it will achieve double-digits. In Rhode Island, which has been in double-digits for quite some time, already, the experts continue their reluctant predictive marches toward my initial gut estimate of 14-15%. And worst of all, usage of the term "jobless recovery," perhaps calling forth that terrifying creature, the W-shaped recovery, has moved from whisper to indoor-voice.

Oddly, for all the distinguishing between young workers and older workers, employed, unemployed, and not-looking, discouraged workers, few reports are differentiating between employers in an attempt to explain how the economy can grow without creating jobs. One wonders whether the reason has something to do with the subsequent conclusion, to which Larry Kudlow comes based on this picture:

The large companies are gradually recovering as a result of major cost-cutting, inventory reduction, and a lean-and-mean return to profitability and high productivity. So the payroll survey registered a 216,000 job loss, the smallest drop in over a year.

However, the household survey, which picks up small, owner-operated, LLC/S-Corp-type businesses, registered a devastating 392,000 job loss, which follows losses of 155,000 and 374,000 in the prior two months. This is the source of the unemployment-rate jump, as 466,000 newly unemployed were scored in the report.

In a nutshell, this is without question now the Obama administration's recession:

Borrowing from Peter to redistribute to Paul is not fiscal stimulus. It's a fiscal depressant. Small businesses are having enough trouble getting their hands on credit. And now they can't find enough capital for new start-ups. The government prospers, but the small-business sector sinks.

Then there are all the tax and regulatory threats related to health-care and energy reform. Until Mr. Obama retreats from his plan for a government takeover of the health-care sector, and a cap-and-trade program that will cripple the energy sector, the cost of hiring the new job will continue to rise.

The threat of higher payroll taxes and energy costs is more than enough to deter new hiring. Taxes on upper-end investors are going to rise, too, and there may be a health-care surtax on top of that. And don't forget that small businesses pay the top personal tax rate, which is going up. Oh, and how about the recent minimum-wage hike? Yet another business cost.

So while the government doles out money for transfer payments and one-time temporary tax credits, the ensuing increase in the private-sector tax-and-financing burden becomes a complete deterrent to new job creation, as well as capital formation.

Kudlow suggests that Obama and the Congressional Democrats could perhaps spur recovery simply by backing off their mad-dash for government power. Similarly, Rhode Island's General Assembly could hand their ostensible constituents hope of a quick turnaround if legislators would signal soon and decisively that the state has learned the error of its ways and intends to make itself the most business-and-taxpayer-friendly cut of land in the Northeast.

Neither of those conversions is very likely, of course, which means that our highest priority, as individuals, should be to find something buoyant to hold onto, and to grab it tightly.

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Justin suggests we should "find something buoyant to hold onto, and to grab it tightly".

That is a strategy with a proven track record.

Indeed, that mantra has worked well for the public employee Unions who have for years bouyed themselves by grabbing tightly to the taxpaying public (and more importantly to the pandering spineless politicians that sustain their death grip).

RI is suffering 13% unemployment and climbing with no catalyst in sight to suggest it will turn around, yet we have Entitlement-minded Union-hacks that fight fair-minded Furloughs, demand salary increases and reject any notion of paying their fair share of their healthcare, as well as rejecting Pension reform.

When will we have a concerted effort to repeal the Collective bargaining laws that allow a special group of our "workforce" to be immunized against the free-market?

Why do we continue to allow the lazy, Entitlement-minded, coddled, not-so-bright, low-self-esteem, scared of the free-market, horrified at the prospects of living in the real world, chicken-crap, hardly-working Union-hack dependents to be treated with kid gloves, protected by whacko legislation (e.g. allowing compensation decisions to be determined by unaccountable arbitrators)?

When are we going to legislate the minimum that an employee must pay for taxpayer funded employment-related healthcare, not to mention legislating caps on salary increases for taxpayer funded salaries.

After all, we legislate the minimum wage (we don’t leave it to “negotiations”).

Posted by: George Elbow at September 5, 2009 10:15 AM

How about organizing the good government groups together in a fashion similar to the economically incentived leftists who quickly circle the wagons to advance their joint cause of maintaining the status quo? It's time for the center right fiefdoms of Rhode Island to bury hatchets and work together or nothing will change in this state.

Posted by: MadMom at September 5, 2009 2:34 PM

What a crazy idea.

Posted by: Justin Katz at September 5, 2009 2:39 PM

Great idea.

Sadly, however, we are destined to be molested by the Union-hack dependents.

Ironically, their weakness is their strength. They are not self-reliant individuals. They are weak by nature, dependent as opposed to independent, followers instead of leaders, unable to survive on their own, thus needing the Union to get through life.

These generally un-American qualities (i.e. America was founded and created by self-reliant, entreprenorial individuals and leaders ...does anyone think Union work-to-rule BS would have been tolerated or helpful as the Mayflower crossed the pond) lend themselves to cohesion.

"Right-center" folks just want to be left alone to make it based on their merits & hard-work. Dependency upon a group is just not in their DNA.

That being said, the results are worth trying for.

Posted by: George Elbow at September 6, 2009 8:23 AM

Since this will last much longer than Wall Street wants anyone with a buck to give to believe Obama will go down in history as overseeing the decline of the US as a world power.

Thinking people able to see more than a few feet in front of them will know better. Obama didn't cause this it goes way back before him. He is deeply at fault for making the wrong moves though.

Bailing out the biggest banks in order to protect a subset of much less than 1% of the US population that were shareholders and bondholders was simply wealthcare paid for by all of us. The existing system in place with the FDIC would have protected depositors at a much lower cost and the surviving banks would have stepped in. Instead we have huge zombie banks who borrow huge amounts at zero percent and deposit those loans and their reserves with the Fed for interest rather than lend them out. These banks own the Fed so naturally they unlike the 90 banks that have failed so fat this year or the 500 predicted to fail within the next are given special Fascist treatment and nary a peep of protest.

The 5 major viral decisions that placed us where we are and where we are headed.

1-Congress giving over constitutional control of the money supply to a private institution controlled by the New York banks in 1913 with the Federal reserve Act.

2-Nixon taking us off the gold standard in 1973 allowed rampant inflation which he tried to counter with wage and price controls which failed.

3-Government statistics were/are used to hide inflation allowing real wages to fall for people whose wages were tied to inflation stats. An example of this is a model car that sells for $30,000 for instance is replaced by a 'new' model that carries the same name and is introduced for $40,000. The government sees that not as a price increase reasoning that the car never existed. For you and I we see a car now costing $10l more new. There are numerous examples of this.

4-Free trade allowing offshore goods into the country tariff free. No US worker can afford to house, feed and clothe themselves never mind a family based on wages made in overseas manufacturing havens. A steelworker in China makes $150 to $300 a month. Free trade and not unions have killed American manufacturing. Any argument that says an individual can house, feed and clothe themselves for those wages is fantasy based. The only separation is shipping costs. Mexico has no problems there and competes with China on labor costs.

5-The removal of the depression era regulatory controls (Glass-Steagall) which kept banks from gambling with depositor funds and the CFMA which made credit derivatives free of regulation. These along with the lack of regulation from regulators who just don't do their jobs. SEC officials asked about Madoff recently said he just seemed too legitimate to be a thief hence they didn't dig deep. Fannie and Freddie are not in trouble because they accepted subprime mortgages simply because that was against the law. They are in trouble from buying derivatives made up of lousy subprimes and option ARM mortgages that were sliced and diced into derivatives made impossible to review and stamped AAA by clueless and corrupt ratings agencies.

The next bubble that bursts will be worse.

Larry Fischer, Ben Bernanke's Economics Professor at MIT recently was quoted at the Jackson Hole, WY meeting of world economists

"We seem to be taking it for granted that we should go back to the structure of the financial system as it was on the eve of the crisis"

This is Obama's downfall as he brought into power several key figures who were behind the mess we are in today including Larry Summers and Geithner.

We are doomed. :-)

Posted by: doughboys at September 6, 2009 10:36 PM
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