Saturday, June 9, 2012

Obama's "fine" economy

President Obama--in what was a colossal blunder--said at a press conference the other day that "the private sector is doing fine," when it comes to job creation. The comment in context:
The truth of the matter is that, as I said, we created 4.3 million jobs over the last 27 months, over 800,000 just this year alone. The private sector is doing fine. Where we're seeing weaknesses in our economy have to do with state and local government. Oftentimes cuts initiated by, you know, Governors or mayors who are not getting the kind of help that they have in the past from the federal government and who don't have the same kind of flexibility as the federal government in dealing with fewer revenues coming in.
On the heels of poor economic numbers, the comment--even in context--seems difficult to defend. And indeed, Obama corrected himself almost immediately after the presser:
It's absolutely clear the economy is not doing fine. That’s the reason I had a press conference. That’s why I spent yesterday, the day before yesterday, this past week, this past month and this past year talking about how we can make the economy stronger. The economy is not doing fine. There are too many people out of work. The housing market is still weak, too many homes underwater and that’s precisely why I asked Congress to start taking some steps that can make a difference.
Any reasonable person--I think--must recognize that the first comment, the one about the private sector "doing fine," is the one that reflects Obama's actual views on the matter. After all, it was made in reference to what Obama perceives to be impressive numbers, when it comes to "job creation" (quite possible the dumbest metric  to ever enter discussions on the economy).

It's a big number, quite impressive. Over four million jobs "created." And note the use of the royal "we." The jobs weren't just created, WE--meaning Obama and his administration--created them. One has to wonder how--in the past--any new jobs appeared in the private sector without someone around like Obama to "create" them. I guess it was just dumb luck then. Because again, over four million is impressive. Right? Certainly, it has to rank right up there, when it comes to recoveries in history. And what makes the number even more impressive is that these private sector jobs were created--apparently out of sackcloth--by the President and his policies. By government fiat, if you will.

So, just how impressive is that number, really? Jonathan Chait--one of the unofficial court panegyrists for the administration--defends the initial comment, calling it true:
Obama uttered that line in support of his contention that the economy is not fine, and that the Republican Congress ought to stop blocking his jobs program. Obama’s argument is that private sector jobs have grown steadily, but overall job growth has been held back by continuous cuts in government employment (which has dragged down private sector growth as well.
This is true.
 And--to make his case--he even has a handy dandy chart:


He explains what the chart means, as well:
The upward-sloping red line is private sector employment, and the downward-sloping blue line is government employment.
There it is. In black and white, or blue and red, the proof that the private sector is doing fine, while government employment is sliding downward. Setting aside the issue of whether or not there were already far too many people drawing government paychecks, many of whom weren't doing anything particularly useful, let's just focus on the "upward-sloping red line."

After the official recession ended (the grey-shaded area), after many, many jobs were lost because of the economic crises from 2008-2009, private sector employment began increasing. But here's the thing: private sector employment--when there isn't a recession--is always increasing. Why? Because the population is always growing. New people enter (and exit) the workforce every day. But on balance, more enter than leave, because the net population growth is positive. And more people means more services, more homes, more cars, more of everything. In short, an increase in demand. In fact, even the people leaving the workforce--via retirement--can create more demand.

Thus, some amount of "job creation" is a given (again, assuming no recession or economic crisis) as a matter of course. So, if we figure this in to Obama's impressive number of 4.3 million jobs created (assuming it's accurate), what do we have? Estimates vary on this, but generally it is assumed that somewhere between 100,000 and 150,000 jobs are needed each month to keep pace with population growth. Thus, on the low end we have (for Obama's cited 27 months) 2.7 million of those jobs amounting to, well, nothing. On the high end? 4.1 million of the jobs serving only to keep pace with population growth.

At best, Obama can tout some 1.6 million jobs that have had a meaningful impact on unemployment, that represent new growth. That works out to under 60,000 jobs per month. At worst, 200,000 jobs...or less than 7,500 per month. And remember, the baseline here is the bottom of the trough after the recession ended. To get the numbers back up to where they were prior to the recession is going to require quite a bit more "creation."

Yet, Obama sees this as evidence that the public sector is "doing fine." And Jonathan Chait actually believes the evidence supports the President on this. Who else is rolling their eyes into the back of their head?

Cheers, all.

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