The U.S. employment news on January 10
sharply contradicted the oft-repeated refrain that economic growth
was beginning to accelerate. Employers added only 74,000 jobs in
December, the smallest job increase in three years and far below the
200,000 expected. The new number was well below the 182,000 average
for all of 2012 and 2013 through November and less than the
approximately 150,000 needed for population growth and replacing
retirees.
The dismal number of new jobs was
blamed in part on severe weather and increased retirements from an
aging population, but too much importance should not be assigned to
these factors. The really severe, record-breaking weather so far
this winter occurred in early January so would not be reflected in
the December figures. And the loss of jobs among prime-age workers
was far larger than for older ones. Among workers ages 45 to 54, the
labor participation rate dropped 0.4% to 79.2%, the lowest since
1988. For workers 55 and older, the rate was only down 0.1 percent.
The jobless rate fell to 6.7% from 7%,
but most of the people responsible for the decline simply dropped out
of the labor force. Less than one-third of them found a job; the
rest just quit looking for one, perhaps too discouraged to continue.
In December, 2.6 million workers were looking for a job for more than
a year. The most significant job gains (55,000) were in low paying
jobs, and 40,000 others were for temporary help. Those aren't signs
of a healthy economy.
Total employment is still about 2
million less than when the recession started. That is a shocking
figure, but perhaps the most shocking statistic of all is that the
labor participation rate is the lowest in 35 years, going all the way
back to 1978.
The graph shows that the poor
performance during Obama's presidency essentially took place after
the end of the recession. He took office
on January 20, 2009, and the Great Recession officially ended in June
2009, according to the National Bureau of Economic Research. (The
graph ends with a slight uptick as of Q3 2013, but the 1.8% gain was
lost in the fourth quarter of 2013.)
Scarcely three weeks after Obama's
inauguration, Congress on February 14 passed his $787 billion
stimulus bill (later adjusted to $812 billion.) When Obama took
office, the unemployment rate was 7.4%. The Obama administration
link link promised that if the stimulus bill was passed, the rate would not
exceed 8%, and Obama himself stated it would decline to 5.6% by July
2012. Instead the rate rose to 10% and remained above 9% for more
than forty months.
The argument that Obama inherited a
severe recession that requires a longer recovery time is without
merit, says John B. Taylor, an economics professor at Stanford
University. He cites the research of Michael Bordo and Joseph
Haubrich of the Cleveland Federal Reserve Bank as having “blown
holes in that argument.” He writes, “Recoveries from
deep recessions with financial crises have been stronger, not weaker,
than recoveries following shallower recessions. These strong
recoveries average about 6% real GDP growth per year, compared to
only 2% per year in this recovery.” With holes blown in this
possible defense of Obama's record, it is clear that the blame for the poor
economy from 2009 to today in 2014 rests entirely on the misguided
policies of Obama.
The administration said the stimulus
spending would create three to four million new jobs. Of course,
the unemployment figures alone tell you that never happened. And the
jobs that were created were incredibly costly and wasteful.
According to the Congressional Budget Office, every job created by
the stimulus program cost the taxpayers between $500,000 and $4
million.
The idea that government spending would
stimulate the economy can be traced to John Maynard Keynes. He
claimed government spending produced a multiplier effect through a
chain reaction of additional spending in the economy. The
gigantic spending of the stimulus program was sold to Congress on the
basis of a Keynesian multiplier of 1.5, meaning the GDP will increase
by $1.50 for every dollar of government spending. But
in my new book, The Impending Monetary Revolution, the
Dollar and Gold, I point out
that extensive research has shown the Keynesian multiplier is always
less than 1.0. That means the money that is spent over and over
again in the private sector from the government spending is always
less than the cost of the programs. If it weren't, the U.S.,
Greece, and other spendthrift countries wouldn't be going
broke—they'd be getting
richer the more they spent! My book quotes Brian Westbury,
former chief economist for the Joint Economic Committee of the U.S.
Congress, who wrote “the larger the government share of GDP, the
higher the unemployment rate. In other words, when it comes to jobs,
government spending has a multiplier of less than one—government
spending destroys jobs.” Also, Harvard Professor Robert Barro, who
has studied Keynesian multipliers as thoroughly as anyone, concludes,
“There is no meaningful theoretical or empirical support for
the Keynesian position.”
Franklin Roosevelt adopted Keynes'
economic ideas to try to pull the country out of the Great Depression
of the 1930s, but extensive research has shown the opposite effect:
they prolonged the depression. It should not be a surprise that
similar policies by Obama produced similar effects regardless of
promises of “hope and change” and exclamations of “Yes we can!”
The futility of the Keynesian approach
was explained to the House Ways and Means committee late in FDR's
second term by his treasury secretary and good friend Henry
Morgenthau Jr. On May 9, 1939, he testified: “We have tried
spending money. We are spending more than we have ever spent before
and it does not work....After eight years of this Administration we
have just as much unemployment as when we started....And an enormous
debt to boot.” In May 1939 the unemployment rate edged above 20%.
Hunter Lewis, author of the book Where
Keynes Went Wrong, says, “There is no evidence” that spending
ever cured a recession, and Keynes “wasn't
particularly interested in evidence.” Keynes believed spending—for
anything—was the driver of the economy. He even endorsed printing
money with expiration dates so people would be forced to spend it.
That, of course, would destroy savings, leaving the people unable to
provide for their future (and dependent on the government), and
eliminate investments needed for economic growth. Lewis says Keynes
suggested
that the government could print new money. That money would flow into
the economy in the form of debt, and that would take the place of
savings, but there is just no evidence for that at all, there is no
logic behind that. In fact, if you want a good economy, what you need
is savings, and you need then to invest those savings, and you need
to invest those savings in a wise way...Of course, Keynes completely
ignores the issue of how you are investing. For him, not
only is any investment equivalent to any other investment, but
spending is equivalent to investment.
(Emphasis added.) link
Of
course, if that is the case then it is unimportant that every new job
from the stimulus program costs $500,000 to $4 million. That
investment is as good as any other. If that doesn't work, print more
money. The important thing is the spending. In an article in
Redbook
magazine in 1934, in answer to the question “Can America spend its
way into recovery,” Keynes answered, “Why, obviously, the very
behavior that would make a man poor, could make a nation wealthy.”
Keynes
intent was “positive social improvements,” namely, the
redistribution of wealth. In his 1940 book, How
to Pay for the War,
Keynes wrote, “I have endeavored to snatch from the exigency of war
positive social improvements. The complete scheme now
proposed...embodies an advance toward economic
equality greater
than any which we have made.” (emphasis added.)
You can see why Keynes' ideas are so
appealing to Obama, who in December 2013
declared economic inequality is the “Defining challenge of our
time...That’s why I ran for president....It drives everything I do
in this office.”
On the floor of the Constitutional
Convention on June 26, 1787, Alexander Hamilton declared, “Inequality
will exist as long as liberty exists. It unavoidably results from
that very liberty itself.” Our Founding Fathers chose liberty;
Obama has chosen economic equality—necessarily at the expense of
liberty. When he told
“Joe
the plumber” during the presidential campaign in 2008, link “I think
when you spread the wealth around, it's good for everybody,” he was
advocating the redistribution of wealth at the expense of not only
Joe's liberty and property but of his inalienable right to use his
own money for the pursuit of his own happiness. The Founders
expected property rights to be the principal means for exercising
that right. The distribution of wealth was to be determined not by
force but by freedom, not by government but left to the people to
determine for themselves by exercising their rights. It would be
whatever distribution results from the labor of free men and their
free (voluntary) exchanges with each other. A free-market economy is
the only one appropriate for a free people.
The word “liberty” is mentioned in
both the Declaration of Independence and the Constitution. The
former says it is an “unalienable right” in the famous phrase
that links it to the rights to life and the pursuit of happiness.
The Premable of the Constitution gives “to secure the blessings of
liberty to ourselves and our posterity” as a reason to “establish
this Constitution.” Nowhere do either of these two founding
documents of our government mention economic equality or
redistribution of wealth. The “defining challenge” of our time
is not economic inequality. It is preventing people such as Obama
from perverting his office and our Constitution and making the U.S.
more representative of Karl Marx's class warfare and his dictum “From
each according to his ability; to each according to his need” than to
the ideas of our Founding Fathers.
The “transformational change” Obama
promised has been very expensive. Regulations have proliferated. On
August 1, 2013, Sam Batkins, director of regulatory policy at the
American Action Forum, testified
before a congressional subcommittee that “major” regulations
(those costing $100 million or more) and the amount of federal
paperwork “have increased significantly over the last five years.”
He also said that delays are often the result of “hundreds of new
requirements from Dodd-Frank and the Affordable Care Act
[Obamacare].” He noted, too, that there are more than 9,100
different collections of information for managing the regulatory
programs.
In 2010 Congress passed 129
private-sector mandates, the highest ever recorded. In addition to
recording the sheer number of mandates, the Congressional Budget
Office records whether mandates exceed the statutory threshold
(currently $150 million) under the Unfunded Mandate Reform Act. In 2010, Congress passed 25 mandates that
would likely exceed the statutory threshold, easily the highest
figure on record and more than triple the yearly average from 2002 to
2008. In 2011 more than 340 regulations (“major” as well as
lesser ones) were proposed, and the Federal Register noted that more
than 4,200 others were in the pipeline.
The CBO also tracks the unfunded
mandates on states and local entities. In 2009 and 2010 there were
116 of these unfunded mandates.
Batkins noted, “It is clear that
current regulatory burdens have legislative roots of historic
proportions. These figures on mandates are important because they
eventually become federal regulations and translate into real costs
for private entities and states.”
In addition to tracking mandates and
rulemakings, the American Action Forum tracks the paperwork burden
imposed by federal agencies. “Based on our current data for 2013,
the federal government has imposed 85 million paperwork burden
hours...[and] Americans spend more than 10.34 billion hours annually
completing federal paperwork. The supposed cost for this paperwork is
$72.8 billion, or $7.04 per hour, less than the federal minimum wage.
There are two other measures to monetize the nation’s 10.34 billion
hour burden: the median wage of a 'compliance officer' ($31.23)
or the real Gross Domestic Product per hour worked ($60.59).
Using these two figures, the monetized burden of federal paperwork
ranges from $322 to $626 billion annually. These figures
include only the paperwork costs of regulation, not deadweight losses
or other capital costs.”
“It is undeniable that federal red
tape is growing, and will likely continue to trend upwards with the
implementation of the Affordable Care Act and Dodd-Frank. Based
on the most recent Information Collection Budget of the U.S., the
federal government added 355 million hours in the last fiscal year.
To put this figure in perspective, assuming a 2,000-hour work year,
it would take 177,500 employees to comply with the new paperwork.
Added regulatory burdens, however, should not be thought of as a jobs
program.”
The Office of Information and
Regulatory Affairs reported that 2012 was the costliest year on
record, at $29.5 billion (in 2001 dollars) and surpassed the second
highest total by 57%.
Duplication resulted in huge costs.
Based on 17 areas of duplication, the AAF “found 642 million
paperwork hours, $46 billion in costs, and 990 forms of federal
overlap. For example, ten different agencies are involved in
renewable energy programs and produce 96 related forms.” There
were more than 600 different forms relating to veterans' claims,
“imposing millions of paperwork burden hours.”
All of these regulatory measures cost
a great deal of money. They impose enormous costs on the private
sector, making it increasingly difficult for the economy to grow. But
the largest and most dangerous cost is the one that will be paid by
everyone for the destruction of the dollar through Keynesian
spending by the government and Keynesian printing of money by the Federal Reserve. In
his first term of office, Obama added as much to the national debt as
all the presidents from George Washington through George W. Bush
combined. In the fifteen months following collapse of the
housing/mortgage bubble in 2008, the Fed created more money than in
all the years combined since 1913 when it was founded.
The recent 19-day partial shutdown of
the federal government over raising the national debt ceiling shows
it is politically impossible to avert the coming disaster. The fight
over the debt ceiling was not about actually cutting
government spending—making government live within its means—but
about raising the debt ceiling so spending could be increased.
Obama had previously appointed a
bipartisan National Commission on Fiscal Responsibility and Reform,
headed by Erskine Bowles and Allan Simpson, both highly respected.
This sounded good. It allowed the president to pretend he was
serious about the problem. He even promised, “Once
The Bipartisan Fiscal Commission Finishes its work, I will spend the
next year making the tough choices necessary to further reduce our
deficit and lower our
debt. link." That
promise was worth as much as his promise that people could keep their
health insurance. That he was insincere about promising to reduce the
debt was evident when it came time for dealing with the budget
deficit and the national debt ceiling. He totally ignored his NCFRR commission's calls for immediate and steep cuts and
instead insisted on further increases in spending. Finally, the Republicans,
anxious to avoid another government shutdown, agreed to a $1.1
trillion spending bill that would pile another $45 billion onto the
$17 trillion national debt. The agreed compromise does nothing to
reduce government spending, merely kicks the can a little further
down the road.
Continuing
to increase federal spending is far more serious than might appear.
More is at stake here than simply passing a huge cost onto our
children and grandchildren—which would be bad enough in itself, and
immoral as well—but the problem is worldwide. Every central bank
in the world is following the same Keynesian policies, which aren't
working, but they keep doing them anyway. The
Fed, the European Central Bank, and the central banks of Japan,
Switzerland and China have printed an astounding $10 trillion since
2007, tripling the size of their combined balance sheets. To expect
governments to repair the economy is to expect the cause to be the
cure.
The
U.S. has not—yet—suffered the same results for its extravagant
spending as, for example, Greece because of the dollar's status as
the world's reserve currency dating from the Bretton Woods Agreement
in 1944. The dollar became the basis of international trade, but
that status is being threatened by a loss of confidence because of
our debt. Countries are starting to abandon the dollar as an
intermediary in foreign trade, turning instead to other currencies
and gold. China and Japan, the world's second and third largest
economies, have agreed to trade in their national currencies, the
yuan and the yen, instead of using the dollar as an intermediary.
Russia and China trade is in rubles and yuan. India no longer buys
Iranian oil in dollars but in rupees. India and Japan have signed a
new $15 billion currency swap. Brazil became the first South American
country to sign a currency swap agreement with China, bypassing the dollar. Reuters has
reported, “France
intends to set up a currency swap line with China to make Paris a
major offshore yuan trading hub in Europe, competing against London.”
South Africa, Venezuela, Germany, Cuba, Pakistan, Argentina and
others are said to be set to join currency arrangements for trading
without the dollar.
link
The
BRICs (the large developing nations Brazil, Russia, India and China)
are said to have agreed to trade in other currencies and periodically
settle differences in gold. You can hear this and other interesting
comments by Karen Hughes at Karen
Hudes Predicts "Permanent Gold Backwardation" . She is a woman with 20 years experience at the World Bank, where
she was general counsel. She is no longer at the bank, having
departed after being a whistleblower on corruption at the bank.
In
my book I noted that the argument put forth that 85% of foreign
exchange transactions being denominated in dollars means the dollar
won't be displaced for a very long time. But that 85% figure
developed from the dollar's relative stability and safety over many
decades. I wrote that the 85%would erode as people lost confidence
in the dollar and that people will likely be surprised by the
suddenness of its ultimate collapse. Now the movement away from the
dollar is already underway and proceeding faster than I expected.
I
shall close with mentioning an article on the problems facing the
Federal Reserve, by Phil Gramm and Thomas R. Saving. Gramm, a Ph.D.
and former U.S. senator, was a university professor of economics
before turning to politics. Thomas Saving,Ph.D., is a professor of
economics at Texas A&M university. Their article is quite
technical so I won't discuss it here. If interested, you may find it
at link.
I shall only quote their ending: “The full bill for this failed
policy has yet to arrive. No such explosion of debt has ever escaped
a day of reckoning and no such monetary surge has ever had a happy
ending.”
