Another View of the Economic Outlook

Rea Hedermark and James Sherk penned this piece in response to the latest jobs report. They point out that while there is a lot of gloom, there is also plenty to temper the gloom. First, wages increased by 3.7%. I am, frankly, not much of a fan of wages as any indicator of anything because most people get much if not all of their income from something other than wages. They also point out that even despite the gloomy report only a fraction more folks are unemployed this year than last.

Despite the job losses, some evidence suggests that the employment picture is not dire. The unemployment rate remains surprisingly low at 4.8 percent. Wages increased by 3.7 percent compared to the previous year, which is indicative of a solid job market. Workers are not overly discouraged. Compared to last year, only 21,000 more people are not working because they are discouraged about their chances of finding a job. This is a tiny fraction of the 4.7 million people who are unemployed but say they would like a job.[1]

This view fits in with my view that the Fed has been far too aggressive in lowering interest rates. Their tempered view of the economy is in line with mine. Though they never specifically said anything about interest rates, their perspective would encourage a tempered Fed policy.

What is most interesting is what these two said the government should and shouldn't do. Let's start with what the government shouldn't do: raise taxes, extend unemployment benefits, and restrict trade. The two also pointed out that the government should also cut corporate taxes. In other words in the view of the Heritage Foundation, a Conservative think tank of course for full disclosure, they just repudiated the entire economic platform of the Democrats.

In this environment, Congress must resist the rush to legislate and should ensure that any response actually helps the economy. Congress should not raise taxes, extend eligibility for unemployment insurance benefits, or restrict international trade. Instead, it should ease the burden it places on businesses and entrepreneurs.

Bill O'Reilly had two Fox News business analysts on last night. He discussed the economy and its effect on the 2008 election. Normally a gloomy economy favors the party out of power, in this case the Democrats. The two pointed out, like these two, that this may not be so because the Democrats solutions are all counter productive. O'Reilly intuitively pointed out that most folks aren't as sophisticated as them, and would likely merely blame the Reps for the problems. It will be interesting if the electorate at large understands just how corrossive tax increases and trade restrictions are during periods of downturn. Given that the Democrats are in fact proposing the exact opposite of what you are supposed to do during a recession, we will see if the electorate is smart enough to figure it out.