Tuesday, May 28, 2024

“Blood, Sweat and Deficits”

When Treasury Secretary Timothy Geithner made the rounds of the Sunday broadcast news programs, in the wake of one of the most disappointing monthly jobs reports since the end of the recession, there was a faintly familiar ring to his hollow and unconvincing message to the American people. To be fair, he had a very difficult assignment, trying to defend the failed economic policies of the Obama administration. He argued that the US economy would be much worse today if Obama hadn't lavished over $800 billion on what the president now admits was a misleadingly promoted stimulus program, and how Obama's current policies will strengthen the admittedly weak US economy.

 At the same time, Geithner also admitted that it will be a long time before the American people who have been suffering the most due to a lack of jobs and weak economic growth will feel any significant improvement in their own lives. In a moment of candor, Geithner said that, “This a very tough economy, and I think that for a lot of people, it’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for a long time to come.” But he tried to shift responsibility away from the Obama administration, claiming that the underlying crisis was “caused by a long period of lost opportunities to do things to make the country stronger.”


Geithner’s message recalled some aspects of one of the great speeches made by British Prime Minister Winston Churchill, but without the confidence that Churchill expressed in the ultimate success of his efforts to defeat the Nazi challenge.


Churchill made that speech during the darkest days of World War II. Germany had just invaded France, forcing the resignation of British Prime Minister Neville Chamberlain whose policy of appeasement had led to war, and which Churchill had condemned.


With defeat looming as British forces in northern Europe were being surrounded and cut off by the rapidly advancing German army, Great Britain turned to Churchill for leadership, and he responded with a stirring call to arms that put to rest, once and for all, any possibility that Great Britain would submit to German pressure for a surrender. On May 13, 1940, as Churchill assumed the post of prime minister, he told the British parliament and the world: “I have nothing to offer but blood, toil, tears and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many long months of struggle and of suffering.”


Yet, at the same time, the indomitable British prime minister expressed every confidence in the final outcome of the war, but without minimizing the terrible cost: “You ask, what is our aim? I can answer in one word: Victory. Victory at all costs – Victory in spite of all terror – Victory, however long and hard the road may be, for without victory there is no survival.”




The key difference this time is that, unlike Churchill, Obama and the leaders of his administration, such as Geithner, are not offering the American people a long-term path back to prosperity. Yet, they still maintain the same failed liberal tax and spend economic policies which they have pursued since coming to power, without recognizing or admitting their fundamental flaws.


Geithner and Obama continue to argue that the increasingly negative perception of their economic policies is due to a communications problem, rather than any fundamental flaw in the policies themselves. Geithner claimed once again that fairness required that cuts in deficit spending which will impact all aspects of the budget be accompanied by tax increases on higher income individuals, even though they would further slow job creation and delay a robust recovery.




Geithner said that it was “ridiculous” to cite the statistics showing that since Obama took office, unemployment has increased by 26% to a current rate of 9.2% nationwide, at the same time that the national debt went up by 35% to $14.3 trillion. He reeled off a series of causes for the weak current economic figures, ranging from increased gasoline prices (due in part to Obama’s energy policies and the devaluation of the dollar), the impact of the Japanese tsunami and severe winter weather. He blamed everything but the failure of Obama’s economic policies, including the stimulus program, Obamacare, a number of measures meant to revive the housing market, and an aggressive Federal Reserve monetary policy.


According to Geithner, the administration still expects economic growth to rebound in the second half of this year, even though the June jobs report indicated weakness across the board, including parts of the economy which had shown some signs of strength earlier this year.




As the signs of a weakening economy mounted during the past two months, economic analysts disagreed over whether the slump was just a temporary “soft patch” due to outside factors such as higher gasoline prices and the Japanese disaster which would quickly dissipate, or whether it was an indication of deeper problems, leading to the possibility of a “double dip” recession.


Pessimists were particularly alarmed by the very weak job creation in May, leading to an increase in the jobless rate to 9.1 percent, down sharply from much stronger job growth in the first quarter of the year. Optimists argued that the May job report was an aberration, and that robust job growth fueled by an accelerating recovery would quickly resume.


The June job report was expected to resolve the question. It was even worse than the pessimists had feared. It showed that job growth has nearly halted, raising serious doubts about administration predictions that the economy will start bouncing back from what, it admits was, a spring soft patch.


Overall, during the first half of 2011, the nation’s economy grew at about 2 percent, too slowly to keep the jobless rate from rising, and too weak to generate enough new jobs for the 14 million Americans who are looking for work.




The bottom line is that more than 25 million Americans are now unemployed or underemployed, and a larger percentage of the unemployed have been searching for work longer than ever before.


The net of 18,000 jobs that US employers added to their payrolls in June was less than a fifth of the number predicted by economists. It was the slowest rate of job creation in nine months, and far below the 125,000 new jobs needed just to keep up with population growth. Hiring by private companies was the weakest since May 2010. As a result, the official unemployment rate in June rose to 9.2 percent, the highest level of the year.


In addition, the latest report revised downward the estimates for April and May by a combined 44,000 jobs. In June, 272,000 Americans dropped out of the labor force, and temporary jobs, which are often a leading indicator for the labor market, also fell by 12,000 jobs.


A broader measure of unemployment that includes those who have given up looking for jobs out of frustration and those with part-time work who want a full-time job, also rose in June to 16.2 percent, from 15.8 percent.




The steepest losses in June, as they have been throughout 2011, were in government jobs. With state and local governments slashing workers by the tens of thousands to balance their budgets and the federal government posting 14,000 job cuts, as well, overall government employment fell by 39,000 positions in June alone. That followed 48,000 in government jobs cut in May.


But unlike earlier in the year, when private-sector job creation was strong enough to make up for the decline in government jobs, businesses appear to hiring fewer than they were.


For example, transportation and warehousing employment, a good proxy for broad economic activity, rose by only 3,600 in June, compared with 11,500 in May. Financial sector employers, including the banks and Wall Street firms, cut 15,000 jobs, after adding 14,000 in May.


Factory payrolls rose by 6,000 in June after a 2,000 decline in the previous month.


Employment at service-providers increased 14,000 in June, the least since a decline in September. Construction employment fell 9,000 workers and retailers added 5,200 employees.


Average hourly earnings fell 1 cent to $22.99, today’s report showed. The average work week for all workers dropped to 34.3 hours, from 34.4 hours the prior month.


It was, “all in all, an employment report with no redeeming features whatsoever,” said Barclays Capital economist Peter Newland in a research note. “Employment, unemployment, hours and wages all disappointed.”




When asked to explain why the economy seems to be stalling again, pessimists look beyond the temporary factors cited by the Obama administration. They point to continued problems in the housing sector, which had led the country out of previous recessions, but remains severely depressed now. In most sections of the country, home prices are still falling, depressed by a huge inventory of foreclosed properties which are still flowing onto the market, despite several Obama programs which have largely failed to achieve their goal of preventing millions of American families from losing their homes.


The problems in the housing market, combined with the stubbornly high unemployment rate, have undermined consumer confidence. Those who still have jobs are spending less of their money on goods and services and more of it paying down their debt. Weaker than expected consumer demand translates directly into fewer new jobs.


“Firms are hesitant to commit to taking on new employees when customer demand is uncertain,” explains Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott in Philadelphia, who believes that the weak June jobs report, “suggests consumer demand is sputtering. [As a result], we’ll see downwardly revised third-quarter [economic growth] forecasts.”




For those reasons, the Federal Reserve last month downgraded its forecast, not just for 2011 growth, but also for 2012 growth. As Chairman Ben S. Bernanke said last month, the Fed now believes that the temporary factors slowing growth are only part of the story behind the current weakness in the economy.


Following the Fed’s June 21-22 monetary policy meeting, Bernanke predicted that the unemployment rate would continue to decline, but admitted that, “the pace of progress remains frustratingly slow.”


The economy expanded at a 1.9 percent annual rate in the first three months of this year, and the figure for the second quarter is expected to remain around 2 percent, in contrast to the final three months of 2010, when the economy grew at a 3.1 percent annual rate.




The weak June report also puts more pressure on the Obama administration to come up with effective solutions to the jobs problem – at a time when Democrats and Republicans are further apart than ever about what those solutions should be.


House Republican leaders blamed the latest unemployment figures on Obama’s failed economic policies, and noted that the administration had said when it rolled out its stimulus package in early 2009 that unemployment would not exceed 8 percent.


“The president always tells us he inherited a bad situation,” House Republican Conference Chairman Rep. Jeb Hensarling, of Texas, said. “I concede the point, but he has made it worse, and after 2 and a half years, it is time for him to take responsibility and answer the question: ‘Where are the jobs?'”




Obama has been showing more regret lately about the sorry state of the economy. Speaking in the Rose Garden shortly after the June report was released, Obama said he recognizes that “we still have a long way to go and a lot of work to do.”


That followed comments he made earlier last week when he acknowledged that his administration hasn’t been able to come up with a strategy to significantly reduce foreclosures and boost the housing market. He also recently conceded that the stimulus program did not create as many new jobs he said it would, and that he had exaggerated the number of shovel-ready infrastructure jobs that it would create.


Obama has recently been trying to portray himself as concerned about job creation. In recent weeks, he has been making campaign-style visits to politically important states to speak about developing technologies and manufacturing and how to increase job growth. But two and a half years into his presidency, his promises to the American people about creating millions of “green” jobs based on new technology remain largely unfulfilled.




Since taking office, Obama and his team have consistently had to backtrack on their claims for his economic policies. Early on, they said that passage of the stimulus would prevent unemployment from rising above 8 percent.


When that forecast proved wildly inaccurate by fall 2009, as the jobless rate topped 10 percent, the administration promised that when the stimulus took hold, the economy would gain much more steam.


That appeared to be happening until a few months ago when unemployment began to head upward again. Obama tried to shrug off the terrible jobs report for May, blaming it on temporary “head winds.” His economic team dismissed it as a “speed bump.”


With the June jobs report, those “head winds” are now starting to look like a hurricane, and that speed bump now appears to be a more of a mountain.


The weak economy is turning into a big, bright target for Republican presidential candidates, and the tone of the White House’s response suggests that it feels vulnerable.


“Today’s abysmal jobs report confirms what we all know – that President Obama has failed to get this economy moving again,” GOP frontrunner Mitt Romney said.




The stalling of the recovery undercuts one of the Obama campaign’s strongest arguments for his reelection: that he turned around an economy in rapid decline and ushered in a vibrant recovery. The White House has been forced to prepare for a 2012 campaign in which Obama will have to defend his failed economic policies with the lame argument that Republican economic policies would make it even worse.


Until last week, Obama had been given at least an even chance of being re-elected next year. But if the economy continues to stagnate, he may be facing an uphill battle. Historically, no American president since World War II has been elected with unemployment above 8 percent – which is about where Obama’s economists now expect the rate to be in November 2012.


Panic appears to be setting in. Even before the June jobs report was released, David Plouffe, a senior adviser and the architect of Obama’s 2008 campaign, launched into a tirade against Republicans. “All of them are basically just bringing out the same old war horses,” he said. “Let Wall Street kind of run amok, cut taxes for the wealthy, starve investment in things like education, research and development.”


Plouffe also had harsh words for the GOP frontrunner, Mitt Romney. “Governor Romney has reminded us that he’s a world-class political contortionist,” he said. “He’s kind of been all over the map on the president’s leadership on the economy.”


The weak June jobs report also bolsters the Republican case against Democrat demands to raise taxes on those with higher incomes, because these include small business owners who, historically, have been the ones most responsible for creating more new jobs.


“More spending, more taxes, and more punting of responsibility will only mean more weak job reports,” Senator Jeff Sessions, the ranking Republican on the Senate Budget Committee, and Congressman Paul Ryan, chairman of the House Budget Committee, said in a joint statement.


While Obama and left wing Democrats are still clamoring for federal government spending to create jobs, the current emphasis on deficit reduction, especially in the Republican-controlled House, makes any such proposal a political non-starter.




The lackluster pace of the recovery, which started in June 2009, has taken a toll on Obama’s job approval ratings. Despite all of the promises Democrats made for Obama’s big spending stimulus policies, the economy is significantly weaker than it was when he became president in January 2009. By a 44 percent to 34 percent margin, Americans say they believe they are worse off economically now than they were then.


This will create a serious problem for Obama when, as he runs for re-election, his opponent will ask voters, “Are you better off now than you were 4 years ago?”


The Washington Post and Bloomberg News contributed to this story





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