Dr Peter Morici: Today forecasters expect the Labor
Department to report the economy added 113,000 jobs in September - - a monthly
pace too slow to return the nation to full employment.
The economy must add more than 375,000 jobs each month for three years to lower
unemployment to 6% and that is not likely with current policies.
Most analysts see the unemployment rate steady at 8.1%, while a few see an
increase. The wildcard is the number of adults actually working or seeking jobs
- - the measure of the labour force used to calculate the unemployment rate.
Were the labor force participation rate the same today as when unemployment
peaked at 10% in October 2009, the unemployment rate would still be about 10%.
Were it the same as when President Obama took office, it would be about 11%.
Convincingms more adults they don’t need or want a job has been the Obama
Administration’s most effective jobs program, despite trillions in new stimulus
spending, industrial policies, targeted tax cuts, and social programs intended
to boost demand.
In 2007, the last year before the financial collapse, the deficit was $161bn
with the Bush tax cuts in place and the United States fully engaged in Iraq and
Afghanistan. Over the last four years, the deficit has averaged $1.3tn -
-additional targeted tax cuts, such as the $95bn in reduced payroll taxes, and
new government programs account for most of the rest.
Though Congress may avoid Sequestration, some temporary tax cuts, such as
reduced social security taxes and elements of the Bush tax cuts benefiting high
income families will likely lapse and some combination of savings in
entitlements and defense spending will be accomplished. Overall, these would
lower the deficit by something in the range of $300bn.
If reelected, President Obama has promised some additional targeted stimulus
spending -- for example, to aid state budgets under the guise of teacher
retention, infrastructure projects and additional industrial policies targeted
at manufacturing in the alternative energy sector. When all the dust settles,
the deficit will be left approximately where it is in 2012, and more fundamental
problems holding back the US economy will not have been addressed.
Economists agree that inadequate demand for what Americans make is holding back
growth. During the early years of the recovery consumer demand did expand as the
household deleveraging process ended; however, too many of those dollars were
spent on imports that did not return to buy US exports - - the gap between new
imports and new exports was lost demand for US goods and services.
At nearly $600bn, the trade deficit is almost entirely attributable to the gaps
in trade with China and on oil, and it is the single most significant drag on
demand, growth and jobs creation.
If elected, Governor Romney promises to tackle China’s undervalued currency and
other mercantilist policies and open up offshore and Alaskan oil reserves for
development. These polices could quickly boost demand by cutting the trade
deficit in half, create 5m jobs and get the economy growing again.
Longer term, policies proposed by Mr. Romney to lower the trade deficit could
profoundly affect the pace of growth, because export and import-competing
industries spend at least four times as much on R&D as does the private business
sector as a whole.
Cutting the trade deficit in half could easily increase US R&D enough to boost
US GDP growth by one or two percentage points. A US economy growing at 3 or 4% a
year, instead of its current 2%, would have far more resources to address issues
like health care, the solvency of social security, an adequate national defense,
and space exploration.
Friday's jobs report offers more than dry numbers. Rather, it will reveal much
about the progress accomplished - - and yet unrealized - - toward rehabilitating the
economy and creating jobs. With the right policies, the economy can create four
or five hundred thousand jobs a month, grow robustly and again offer Americans
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