March 9, 2010
February 7, 2010
More Government Equals Fewer Jobs
by Peter Schiff- With today’s unexpected decline in December payrolls, the cry for more job-related stimulus will grow even louder. But the sad truth is that any new stimulus or jobs bills will ultimately swell the ranks of the unemployed, thereby raising calls for an even bigger federal effort. If we are not careful, government regulations, subsidies, and spending, all designed to fight unemployment, could push the labor market into a death spiral.
Regulation acts like a tax on job creation. By subjecting employers to all sorts of extra expenses when they hire people, regulations increase the cost of employment far beyond the wages employers actually pay their workers. In fact, some regulations are specifically tied to the number of workers employed. This provides some employers with a strong incentive to stay small and not hire.
The minimum wage law, which is really just a very visible workplace regulation, actually makes it illegal for employers to hire certain individuals and destroys entire categories of jobs. For instance, faced with high labor costs, some restaurants will avoid hiring dishwashers by switching to plastic utensils and paper plates. On a larger scale, factories may decide to switch to robotic assembly lines if human labor gets too expensive.
Other types of regulations, such as those that prohibit discrimination, create incentives for employers not to hire individuals that fall within the protected class. This is the result of potential litigation costs that may result from wrongful termination lawsuits. In other words, the more expensive government makes it to fire workers, the less likely they are to hire them in the first place.
Subsidies produce the opposite effect of regulation, but sometimes the results can be just as harmful. Government subsidies divert resources towards politically favored activities, resulting in more jobs in areas such as health care and education, but fewer jobs in other sectors such as manufacturing. The net effect of this transfer is to diminish the productive capacity and efficiency of the economy, which lowers real economic growth and diminishes employment opportunities.
Although not as visible as regulations and subsidies, government spending also plays a large role in job destruction. The more money government spends, the more resources it drains from the private sector. The fiscal 2011 budget proposed by President Obama contains $3.8 trillion in federal spending. Think of government as a cancer feeding off the private sector. The larger it grows, the more jobs it kills. Unfortunately, most politicians follow the misguided advice of economist John Maynard Keynes, who advocated government spending as a means of job creation. In reality, government spending merely results in government jobs replacing more efficient private sector jobs.
Some economists point to taxes as the primary job killer, and argue that lower taxes will boost employment. While I have sympathy for this view, it misses the larger issue that the burden of government is not what it taxes but what it spends. The proposed fiscal 2011 federal budget contains “only” 2.4 trillion of taxes. The remaining 1.4 trillion of spending is borrowed (incredibly, for every dollar the government collects in taxes, it now spends almost $1.60). I would argue that a dollar borrowed kills more jobs than a dollar taxed. Therefore, cutting taxes and borrowing the shortfall kills more jobs then it creates. This is true because jobs require capital and government borrowing more directly crowds out private capital investment than taxes do.
In the end, I fully expect the government to directly provide make-work jobs to the armies of the unemployed. This will accelerate the pace of private sector job destruction and make our economy even less productive than it is today. This means that while the government may be able to provide people with jobs, the wages they pay will provide little in the way of purchasing power. In the end, we will become a nation of government employees, with plenty of work but little to show for it.
February 3, 2010
January 13, 2010
November 10, 2009
Shocking numbers: Real unemployment tops 22%
Obama Administration figures deliberately understate economic downturn
The true rate of unemployment for October 2009 may be 22.1 percent, not the 10.2 percent reported by the Bureau of Labor Statistics, Jerome Corsi’s Red Alert reports.
Unemployment at 22.1 percent, if accurate, would be at numbers not seen since peak unemployment during the 1973 to 1975 recession.
Economist John Williams, publisher of ShadowStats.com, estimates that the peak of unemployment in nonfarm unemployment in the Great Depression of the 1930s would, by his methodology, have registered at 34 to 35 percent in 1933.
So, how does the Obama administration get away with reporting the lower unemployment percentage?
Corsi explained that the Clinton administration changed the way BLS calculates unemployment statistics by excluding “discouraged workers,” those who had given up looking for a job because there were no jobs to be found.
Since the Clinton years, discouraged workers looking for a job for more than one year are not counted as “unemployed” because they are considered to have dropped out of the labor force.
The BLS still includes in “U6 Unemployment” calculations short-term discouraged workers, as long as they have been looking for a job less than one year.
This definition permits the Obama administration to under-report “U3 unemployment” at 10.2 percent when real unemployment as calculated before the Clinton administration redefinition is twice that amount, Red Alert contends, and U6 unemployment lies somewhere in between.
With millions of jobs outsourced to China and India under free-trade globalism, the dollar weakness that accompanies most recessions is not stimulative, he explained, largely because the U.S. has lost so many manufacturing jobs that are never returning to its shores
“The stock-market bubble will most certainly burst when interest rates rise, as they inevitably will,” Corsi wrote, “both to fight the increasing risk of hyperinflation and to maintain the needed incentive for foreign nations to lend the U.S. Treasury the hundreds of billions of dollars monthly that will be needed to float yet another $1 trillion Obama administration federal budget deficit in 2010.”
November 6, 2009
BREAKING: Unemployment Still High By Gov’t Design
Posted by Erick Erickson:
Wow. Obama has been touring the nation making sure we know how many jobs he has saved or created. It is looking more and more like he is saving or creating the jobless.
Unemployment this morning topped 10.2%, even though the number seeking employment has declined. Many have just given up. Likewise, and more troublesome, the average hours worked in a week is at its lowest in decades — 33 hours. That suggests employers are going to just expand hours worked in the future, instead of hiring new people. So the unemployment number will stay high for a while.
On January 18, 2009, Obama’s top economics advisor Larry Summers said Barack Obama’s stimulus plan would keep unemployment below 10%.
On July 17, 2009, Larry Summers said
“Both administration and independent forecasts predicted that only a very small part of the total job creation expected from the Recovery Act would take place within six months,” he continued. “Indeed, a Council of Economic Advisers’ study predicted that only 10 percent of the total job impact of the Recovery Act would take place during calendar year 2009. Given lags in spending and hiring, the peak impact of the stimulus on jobs was expected not to be achieved until the end of 2010.”
In other words, an ever growing number of Americans have to sit on the unemployment line until next year by design. Why? So in 2010, Barack Obama and the Democrats can run on falling unemployment. They’d rather you starve now so they can have recovery happen in an election year.
We’re all political pawns to Barack Obama.
One more thing: remember, outside economists say passing the Democrats’ health care plan will slow the recovery further, stagnate wages, and increase unemployment. Do we want to do that?
November 1, 2009
Government Intervention in the Economy is Going to End Badly
Be Prepared for the Worst
Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.
A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.
Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan’s excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.
This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble’s collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve’s balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?
What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.
Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury’s program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person’s pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.
The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar’s purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.
October 28, 2009
U.S. Home Price Rebound Already in ‘Bubble Territory’
The gains in U.S. home prices in recent months may not be sustainable and increases in some areas of the country appear to be in “bubble territory,” an economist known for his property market expertise said on Tuesday.
Robert Shiller, an economics professor at Yale University and co-developer of Standard and Poor’s S&P/Case-Shiller Home Price Indices, told Reuters Television he does not give quantitative forecasts on where home prices are headed but is concerned about the recent pace of increases.
Home prices in certain areas, such as Minneapolis and San Francisco, have risen by double-digits over a mere four months, and if viewed on an annualized basis, they look like they are in “bubble territory,” Shiller said.
“It is a time of great uncertainty,” he said.
U.S. home prices in August rose for the fourth straight month. The Standard & Poor’s/Case-Shiller composite index of home prices in 20 metropolitan areas rose 1.2 percent in August from July, topping the estimate of a 0.7 percent rise according to in a Reuters poll.
“The prominent fact that we are seeing with this data is that home prices are just zipping up,” Shiller said.
“It is entirely possible that even with the bad news we are getting, home prices could start a major increase,” he said.
Prices in the top 10 U.S. metropolitan areas gained 1.3 percent in August after a 1.7 percent rise the previous month, according to the S&P composite index.
Shiller said he does not agree with analysts who believe that rising unemployment will hurt home prices. The U.S. jobless rate reached a 26-year high of 9.8 percent in September.
“It is unlikely that we will have the major, colossal bubble we had a few years ago, but even in the Great Depression real home prices were rising with the unemployment rate above 12 percent,” he said. “Just because we have high unemployment does not mean the stock market cannot boom and the housing market cannot boom.
“What happens from here will depend on people’s animal spirits and speculative impulses,” Shiller said.
October 24, 2009
So Goes California, So Goes the Nation?
I have been a California resident for the past 23 years. During that time, I have seen the best of times and worst of times. Prior to this economic disaster, the only serious recession in those 23 years was in 1991-1992. At that time, myself and many others in similar situations faced economic turmoil. However, nothing comes close to what is happening now in what used to be the greatest State in the union.
According to the most recent reports, the unemployment rate in California has reached 12.2%. The rate in Los Angeles County is at 12.7%. Some cities within the county such as Compton and Commerce are over 20%. These are all far worse than the national rate of 9.8%.
What makes these numbers even scarier is that they have not hit rock bottom according to economic estimates at both the state and federal level. In fact, the State Government estimate of a maximum unemployment rate of 12.8% seems like it is going to be topped shortly, probably by early winter. Is it possible that California’s unemployment rate will top the number in 1940 of 14.7% which is the highest recorded on record?
All of these numbers really do not mean anything unless you compare them to other numbers in the country to get a real picture of just how bad things are here right now. The California rate is currently the fourth worst in the country. The only one significantly worse is Michigan at 15.2%. Notice any similarities between the two by the way? Not much except maybe extremely powerful unions in both!
And, on top of all this, the economy is primed to get much worse. When I drive down the streets in Los Angeles, I see nothing but empty storefronts on all major boulevards. Portions of Laurel Canyon Blvd have four to five empty storefronts on each block. Ventura Blvd., Wilshire Blvd., and Sunset Blvd are not fairing much better. And, I am told it is worse in other parts of the state.
According to some reports, the only real estate changing hands here are foreclosures and estate sales. Banks are not even evicting foreclosed owners in some parts of the Inland Empire because they want the house to be saleable when the economy finally does turn around. I mean, who wants to purchase a foreclosed house that has been destroyed by vandals. I know of one particular situation where a family has made no mortgage payments since May, 2007 and is still living in the house free of rent or tax payments.
Are there any solutions to this problem? Is there any quick fix? Or, must we just wait it out in hope that this Great State will make a comeback? I really do not believe any of the Federal Stimulus money will help the California job market. It has done nothing so far except allow some families to survive with the extension of unemployment benefits. It is definitely not helping the ailing real estate or worsening job market. If anything, the excessive federal spending is hurting the economy.
And, what have our representatives in Congress done to help us? Nancy Pelosi does nothing accept cost the US and California jobs with her constant big government, regulatory, liberal agenda. Her support of “Cap and Trade” and HR 3200 will not only effect the US Economy on the whole, but will have a double impact on the state of California. Outsourcing is already a problem here, but it will get much worse if either of these bills become law. In fact, it seems that there is already evidence that California employers are not hiring until the result of both “Cap and Trade” and health care reform are known.
The same goes for Barbara Boxer and Diane Feinstein. Neither of them are doing anything to support the economy in the state. They are just following the same liberal agenda regardless of how it affects the people of California.
One prime example is that there is not one Congressman representing Californians doing anything to overturn the Federal Order which stopped irrigation in the Sacramento area after it was ruled the necessary irrigation had caused the Delta Smelt, a small fish, to become endangered. This has caused the farming industry in the Sacramento and Fresno area to pretty much come to a standstill and bring the unemployment rate in the area to approximately 17%. In fact, the city of Mendota has an unemployment rate of 41%, the highest in the country. (That’s right 41%. It’s not a typo.)
Comedian Paul Rodriguez, a former Democrat and Obama supporter, whose family are farmers in the area, has left his liberal roots as a result of this fiasco. He has now appeared on Sean Hannity’s show stating that the entire area is in extreme danger. Farms are being lost, unemployment is rampant and people are starving: All to protect a little two inch fish.
And what do our Senators and Representatives in California do about this; again, absolutely nothing. It seems it is more important to protect the Delta Smelt than to protect the people of the Central Valley. Let the people starve and the fish thrive. Who cares if 80,000 people in the area are unemployed? If they can not afford bread, let them eat cake.
That is the whole problem with the current Administration and Congress in Washington and the State Legislature in Sacramento, including the aforementioned Ms. Pelosi, Ms. Boxer, and Ms. Feinstein, as well as, Mr. Waxman, Ms. Waters, Ms. Watson and the favorite of this column, Mr. Dan Lungren. They simply do not care about the people, economy or problems of the State. They care only about the special interest groups that finance and support them.
I’m reminded of “Legally Blonde 2” in which Elle’s boss, the Congresswomen, stabbed Elle in the back because a strong campaign financier was against the proposed animal rights bill. It is true whether it be fact or fiction.
In the end, the free market will bring this State back to its former glory provided that the regulators and liberals currently in control, including the Obama Administration and his cabinet, do not destroy it completely. The people of California must rise up against their current so called Representatives and do whatever is necessary to take our government back so that it is a government of the people and for the people, not for the governors!
October 23, 2009
Obama sees worst poll rating drop in 50 years
The decline in Barack Obama’s popularity since July has been the steepest of any president at the same stage of his first term for more than 50 years.
Gallup recorded an average daily approval rating of 53 per cent for Mr Obama for the third quarter of the year, a sharp drop from the 62 per cent he recorded from April.
His current approval rating – hovering just above the level that would make re-election an uphill struggle – is close to the bottom for newly-elected president. Mr Obama entered the White House with a soaring 78 per cent approval rating.
The bad polling news came as Mr Obama returned to the campaign trail to prevent his Democratic party losing two governorships next month in states in which he defeated Senator John McCain in last November’s election.
Jeffrey Jones of Gallup explained: “The dominant political focus for Obama in the third quarter was the push for health care reform, including his nationally televised address to Congress in early September.
“Obama hoped that Congress would vote on health care legislation before its August recess, but that goal was missed, and some members of Congress faced angry constituents at town hall meetings to discuss health care reform. Meanwhile, unemployment continued to climb near 10 per cent.”
Governor Jon Corzine of New Jersey is in severe danger of defeat while Democrats are fast losing hope that Creigh Deeds can beat his Republican opponent in Virginia. Twin Democratic losses would be a major blow to Mr Obama’s prestige.
Campaigning for Mr Corzine in Hackensack on Wednesday night, Mr Obama delivered a plea that almost seemed as much for himself as the local candidate: “I’m here today to urge you to cast aside the cynics and the sceptics, and prove to all Americans that leaders who do what’s right and who do what’s hard will be rewarded and not rejected.”
Mr Corzine, a former Goldman Sachs executive and multi-millionaire, is currently running even in New Jersey, which is normally comfortably Democratic, while Mr Deeds is trailing badly in Virginia, a swing state that was key to Mr Obama’s 2008 victory.
Mr Obama is also facing widespread criticism for his drawn-out decision-making process over what to do next in Afghanistan.
Republicans sense Mr Obama is in a vulnerable position and this week saw the return to the public stage of his perhaps most vehement opponent – Vice-President Dick Cheney.
In a blistering speech on Wednesday night, he accused Mr Obama of failing to give Americans troops on the ground a clear mission or defined goals and of being seemingly “afraid to make a decision” about Afghanistan “The White House must stop dithering while America’s armed forces are in danger,” Cheney said at the Center for Security Policy in Washington.
“Make no mistake, signals of indecision out of Washington hurt our allies and embolden our adversaries.”
He hit out at Obama aides who suggested that the Bush administration had failed to weigh up conditions in Afghanistan properly before committing troops.
“Now they seem to be pulling back and blaming others for their failure to implement the strategy they embraced. It’s time for President Obama to do what it takes to win a war he has repeatedly and rightly called a war of necessity.”