7.8%!
Posted on October 5, 2012
Here are some points to ponder on news of a new unemployment rate:
- This is good new politically for the President. We might as all well acknowledge that fact. 7.8 is better than 8.1. So, let’s just accept that.
- The 114,000 new jobs that accompanied the new unemployment rate was anemic at best. And it is confusing because if the economy only created 114,000 new jobs, the unemployment rate could not drop by that large a margin unless fewer people decided to look for work.
- Lo and behold, guess what: The labor participation rate is at around 63 percent, which is as low as it has been since the first two years of the Reagan Administration. That rate increased a bit in the last month, but in August it had dropped by more than 360,000 people.
- The labor participation rate has decreased for structural reasons and for economic reasons. More people are retiring every day as the baby boomers are starting to hit their stride. They can retire because their 401ks have rebounded nicely over the last 4 years.
- More students are staying in school because they can’t find a job. That means they are taking on more loans that they probably will never be able to pay back. But that is a crisis for another day.
- Mitt Romney’s 47% comment is still off, but not by much, if you look at the labor participation rate. If we only have 63% of the American people working, well, then 37% of the American are not working. Most likely, this 37% is living off some kind of government largesse, whether it is welfare, Social Security, unemployment, students loans are whatever. While I still think it is stupid to write all of those voters off, it is not wrong to wonder if we can afford to have this number of actual workers shrink any more.
- The President doesn’t deserve any credit for the unemployment rate shrinking. He has refused to deal with the fiscal cliff, choosing a political showdown over a compromise on tax cuts that would have provided businesses greater confidence and greater predictability in the near-term future. His redistributionist philosophy does not inspire greater confidence in business leaders to invest in job creation.
- It takes about 3% economic growth to create enough jobs for all of those new people who are entering the work force (which includes teenagers, new graduates and immigrants). The American economy is growing at about 1.5%, clearly not good enough.
- The Romney plan is a pro-economic growth plan. He doesn’t make that point clearly enough. Here is the simple way to describe. You can’t balance the budget without having brisk economic growth. You can’t have brisk economic growth by increasing taxes on job creators. Ergo, you can’t balance the budget by increasing taxes on job creation. Romney finally put it pretty well in the debate. You get more revenues by getting more people paying taxes by getting those people off of welfare and into a steady job. The Romney plan does that. Obama’s plan doesn’t.
- As Marco Rubio has pointed out, the Romney plan has worked everywhere in the world, from Chile to Hong Kong to South Korea to Ireland. The Obama plan has failed everywhere in the world, from North Korea to Argentina to France. I don’t know why this is so hard to figure out.
In sum, the President is going to get a bump from the unemployment rate drop, but I don’t think it will matter in the long run. The economy is still lousy. And because of the upcoming fiscal cliff, it is not going to appreciably improve in the next two months.