Another month under President Obama, another 263,000 jobs lost.
It was not supposed to be this way. Barack Obama promised America
that, if elected President and given control over the nation's
economic policies, he would create 3.5 million jobs, beginning with
the enactment of a massive economic stimulus package. Today's
release of dismal employment figures by the Department of Labor
show that the nation is still waiting.
So far in his term in office, employment has dropped by about
3.4 million jobs, while the unemployment rate has hit 9.8 percent,
the highest in 26 years.[1] The President repeatedly pledged to create
3.5 million new jobs by the end of 2010. He has also repeatedly
emphasized accountability and measuring his presidency by results.
The President's jobs promise means total employment should be at
least 138.6 million by 2010, leaving him with a total deficit to
close that now stands at 7.6 million jobs.[2] By his own standard, these
results attest that Obama's policies have so far failed to
deliver.
Fortunately, the economy's natural recuperative powers spurred
by powerful, effective stimulus from the Federal Reserve mean the
recession may be ending in the sense that overall output and
incomes are stabilizing and the recovery may be on the horizon.
Even so, job losses are likely to continue until the recovery
accelerates markedly, perhaps sometime in 2010 or even 2011.
Meanwhile, the President's policies-such as unprecedented
spending-driven deficits and threatened massive tax and regulatory
increases-will continue to put downward pressure on employment
rather than help to reach his jobs target.
Promises, Promises, and the Growing Jobs Deficit
President Obama's repetition of the 3.5 million jobs figure
demonstrates that this was a serious promise, and the figure itself
was apparently chosen with care. The original target set in the
fall of 2008 was 2.5 million jobs, but as employment fell at the
end of 2008, he increased the employment target by 1 million to 3.5
million in December 2008.
The President's original jobs claim was soon followed by a claim
that the economic stimulus had "saved or created" 150,000 jobs in
the first half of the year, this at a time when employment fell by
1.6 million. This claim was followed by another that the economic
stimulus would save or create 600,000 jobs this summer, but in fact
the economy lost almost 1 million jobs.
When Obama made his 3.5 million jobs promise, employment stood
at about 135.1 million according to the Department of Labor'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 the economy would need to approximate to
hit that target.
According to the latest jobs report, total U.S. employment fell
to 130.9 million in September. The September Obama jobs deficit-the
difference between the target and actual employment-therefore
stands at 7.6 million
Mathematically, closing the Obama jobs gap would require monthly
growth in employment of 477,000 over the 16 months between
September 2009 and December 2010. The greatest 16-month average
increase in employment in modern American history (373,000)
occurred during the peak of the Reagan boom, concluding in December
1984 and dwarfing even the strongest similar period of job growth
during the Clinton Administration.[3] Closing the Obama jobs
deficit would require significantly faster monthly job growth than
ever before.
However, it is reasonable to hope that the Obama jobs promise
can be kept because the workforce and the economy are much larger
today than they were in 1984. This means that the job growth
relative to the size of the workforce can be less than that
experienced under Reagan and yet still close the Obama jobs
deficit.
Specifically, Obama needs to average job growth going forward of
about 0.36 percent of the workforce compared to the 0.39 percent of
the workforce growth under Reagan. This highlights the remarkable
force of the Reagan recovery driven by spending restraint, tax
cuts, support for free trade, and less regulation. But it also
underscores that if President Obama pursues similar economic growth
policies, he could conceivably close his jobs deficit and make good
on his promise.
Why Has the Stimulus Failed?
The centerpiece of Obama's short-term stimulus program is a
massive $787 billion fiscal program he signed into law last spring.
By all accounts, this legislation was poorly crafted. However,
poorly crafted or not, as a short-term economic stimulus it was
doomed from the outset as it is based on the erroneous assumption
that government spending and tax cuts can increase total demand in
a slack economy.
This theory ignores the simplest of realities: Government
spending must be financed. So to finance the resulting deficit
spending, government must borrow from private markets, thereby
reducing private demand by the same amount as deficit spending
increases public demand.[4]
The federal government can stimulate the economy in the short
term not by shuffling demand across the economy through wasteful
deficit spending but by improving incentives and the general
economic environment. Individuals and businesses across the nation
see tremendous opportunities for starting new businesses, for
investment, for hiring new workers, for 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, and others are holding back because
existing tax and regulatory burdens are already excessive.
At this point, the only measure growing faster than the
President's jobs deficit is his budget deficit, which is expected
to reach about $1.6 trillion in 2009, or almost four times the
level in 2008.[5] Under President Obama's budget, spending
grows so rapidly despite massive tax hikes that federal debt is
officially projected to grow by $9 trillion over the next decade,
while a more reasonable projection suggests the growth in debt will
be closer to $13 trillion. Such irresponsible fiscal policies cast
a pall on the confidence of credit markets and businesses preparing
for the future.[6]
The budget also calls for a massive new cap-and-trade system to
allow the government to micromanage the economy while raising
hundreds of billions in new taxes on American businesses. This
legislation has already passed the House of Representatives and is
now heading to the Senate, and would severely hamper the economy
for many years to come.[7]
Health care reform is also high on the President's agenda.
Health care reform is badly needed, but what is developing thus far
in the House and the Senate is much worse than current law. The
President has called for a reform that would cost around $900
billion, and both the House and Senate bills appear to meet that
test, and much of this spending would be offset with errant
spending reductions and tax increases on individuals and
businesses.[8]
These multiple threats posed by Obama's policies badly degrade
the economic environment for investing and hiring and delay the
needed process of substantial job creation.
The Right Path to Job Growth
Effectively stimulating the economy requires more than not
depressing it, however. It requires reducing impediments to
starting new businesses, hiring, working, and investing. That
means:
- Further reducing statutory tax rates,
- Reducing regulatory burdens where possible, and
- Cutting spending to take pressure off of interest rates and
leave more of the nation's productive resources in the hands of the
more productive private sector.
This is the path President Obama must pursue now to close the
jobs deficit and make good on his promise to drive employment to
138.6 million jobs by the end of 2010.
J. D. Foster, Ph.D, 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.