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Thursday, November 12, 2009

The Jobs Summit

There's a time honored political tradition. Whenever politicians have no answer to a problem, they hold a summit, a roundtable, or a create a committee to study the situation. This president appears no different.

President Obama's announcement Thursday of a December jobs summit aimed at synching job growth with massive government spending has provoked cynicism among critics who believe the president is more interested in burnishing his reputation than tackling rising unemployment.

"I think the purpose of the summit is basically just public relations, is to try and convince people that the administration is doing a good job," Harvard economist Jeff Miron said.

Obama's announcement came with unemployment at a 26-year high of 10.2 percent despite the president's repeated touting of all the administration's efforts to create jobs.

The president realizes that the job outlook may be his biggest achilles heal come November of next year. The stimulus has done nothing to create jobs, and the Democrats have spent the rest of the legislation session on health care reform.

So, if unemployment rates stay near where they are now, the ones that will really be in pain next November will be the Democratic politicians facing re election. There's really only a few ways for governments to create an environment for job creation. I say to create an environment because, despite what some politicians will tell you, government can't create jobs. They can only create an enviroment for job creation.

The first is tax cuts especially to job creators: capital gains tax cuts, the top marginal rate, and corporate tax rate cuts. The second is expansive monetary policy. The third is regulatory reform. That of course means less regulation. That's it. He needs no jobs summit. This is really not all that difficult to understand.

Government spending doesn't create an environment for job creation. A massive health care bill doesn't create an environment for job creation, and neither does an energy tax. The president needs no jobs summit but rather a total and complete policy adjustment.


Anonymous said...

Complete, total, and unconditional surrender to the Republicans.

That seems to be your advise to Obama on EVERYTHING.

You'll have to forgive him if he doesn't take it.

John said...

I have to disagree with you on this one, tax cuts won't help because of the stress most states are under. I'll agree that spending doesn't help either and that govt intervention inhibits organic growth mechanisms from properly working (crowding or inefficent fiscal policies). But tax reciepts show that revenue from taxes are at historical lows. Simply cutting taxes cannot induce job creation.

I think there is a structural shift occuring in the world as the fallout from peak credit sets in. If you examine the granular data from the latest employment report you can see that layoffs still persist, hours worked has dropped and duration of unemployment is nearly double any previous recession. The birth death model is the only thing keeping U-3 grounded; did you notice the revision in birth death 2 (or 3) months ago made the unemployment number jump by .4%?

I could go on but you get the gist... this is secular not cyclical.

mike volpe said...

I'm not sure what either comment means.

It's complete and totaly surrender to what works, not what Republicans think work.

As for the second comment, I don't speak gibberish and so I don't understand what you are saying.

Anonymous said...

Okay let me clarify: unemployment is the highest it's been in 70 years. With unemployment high it means you are collecting fewer taxes since fewer people are on payroll, it also means there is less consumption since fewer people are employed (less expendable income). Tax collections are at the lowest level since the 1930's. Cutting taxes further will only increase the size of the deficit and won't stimulate job growth. In order to stimulate job growth the govt needs to stop spending money and intervening in the private markets since it distorts real growth.

How is a private company supposed to comepete with an entity that has access to a printing press? you can't, so private business won't, instead it hoardes cash waiting for the govt to stop spending.

It's not a tax issue, it's a spending issue.


mike volpe said...

If we were trying to lower the deficit, that would be one thing. We're trying to stimulate jobs. Cutting taxes on the job creators does that. This is not all that different from 1981 and Reagan cut taxes and it lead to 25 years of near uninterrupted growth.

Anonymous said...

Job stimulation has never in the history of the world been directly linked to lower taxes, coincident maybe but not causal. The internet boom was not precipitated by a tax decrease yet it set forth a wave of employment that is still being felt in the tech sector. Similarly, we can see that expansion of rights (womens, minorities, ending segregation) have all had more of an impact towards job growth and job creation than lowering taxes.

25 years of uninterrupted growth is not quite accurate either, it's more like 75 years going back to the 1930's. It has to do with credit expansion and supply to the private sector. What we've experienced in the last 5 years has been the largest real estate, stock market, commodity market and currency bubble in the history of the world. Alongside that lots of jobs have been created that simply will not come back.

Do you think we need more real estate brokers? Home builders? General contractors? Real estate agents? McEmployees? What about the strip malls? Do we need more consumption or do we need more austerity? I think we need more austerity across the board.

The recent quarterly reported has shown most companies to have ample amounts of cash, the tax rate is not the problem for corporations, it's the uncertainty of growth going forward. If you read economists like Roubini, Rosenberg, Soss, Rogoff/Reinhart you'll see they don't advocate growth of 3-4% yoy coming back for another decade once stimulus spending is removed.

The deficit is directly linked to this because low interest rates are the only thing keeping a lid on another massive wave of housing defaults (alt-a, CRE, etc.), credit card defaults, soveriegn debt runs (the ukraine was downgraded last night). The deficit needs to be paid down, and spending needs to be curtailed.