What Would Reagan Do?

http://www.nytimes.com/2010/08/10/opinion/10herbert.html?th&emc=th

http://www.nytimes.com/2010/08/09/opinion/09krugman.html?emc=eta1

http://www.nytimes.com/2010/08/10/business/energy-environment/10yuan.html?emc=eta1

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"In the end, people are persuaded not by what we say, but by what they understand."
(John C. Maxwell)

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"At some point we're going to have to claw our way out of this denial. With 14.6 million people officially jobless, and 5.9 million who have stopped looking but say they want a job, and 8.5 million who are working part time but would like to work full time, you end up with nearly 30 million Americans who cannot find the work they want and desperately need."

The quote above is from Bob Herbert in today's NY Times ("The Horror Show"). His point is that the employment situation in the United States is much worse than even the dismal numbers from last week's jobless report would indicate. Herbert is one of many who don't see anything like the sense of urgency that should be in play in Washington to address this situation. Herbert refers to "labor force participation" as a more sophisticated way to look at the problem, and quotes Charles McMillion (President, MBG Information Services), "Over the past three months, 1,155,000 unemployed people dropped out of the active labor force and were not counted as unemployed." Add them back in and the new unemployment rate is 9.9% in April going to 10.2% in July. According to McMillion, there are 3.4 million fewer private-sector jobs in the U.S. than there were a decade ago. This is the worst job creation record since the 1928 to 1938 period.

In an opinion piece in today's WSJ ("Unemployment: What Would Reagan Do?"), Henry Olsen comes from exactly the same place. With his "civilian employment-population ratio" perspective, he's looking at the percentage of working age Americans who have a job, whether they are seeking one or not. When the economy was at its Bush-era peek in 2007, a little over 63% of adult Americans had jobs. Friday's jobs report shows 58.4% have jobs. Translated to "people",
America has about 238 million non-institutionalized civilian adults of working age - this means that we have nearly 12 million fewer JOBS today than we would have if the employment-population rate were still at its 2007 level of 63%.

Olsen goes on to point out that the only instance since WW II of the U.S. economy increasing the employment-population ratio by 5 percentage points in a DECADE was the recovery that followed Ronald Reagan's tax cuts in 1983. Quoting Olsen: "An administration that pursued job creation - not ideology - would note this history and see how individuals and companies can create wealth and jobs quickly if they have the right incentives. Instead, we have policies that are uncertain and portend higher taxes and greater regulatory burdens. This is causing business and consumers alike to restrain spending, creating a drag on the economy too great for any government stimulus to reverse."

We are reminded of our recent post referencing Fareed Zakaria's perspective that Top 500 capital spending is sidelined because of a lack of certainty about potential tax and regulatory burdens. Zakaria's perspective is indisputable: the cash is there, and it's not being spent. He asked the CEOs "why" and their response was exactly what Zakaria quoted. There is more money (and job creation) there than any government "stimulus." Olsen quotes "someone" (and we are not sure here whether he is being facetious about Rom Emmanuel) as saying that we should never let a crisis go to waste. So, in this historic "employment crisis," Olsen advocates that we unleash the private sector (if that's "Reaganism," who cares what we call it, if it works?).

In a related post, Paul Krugman ("America Goes Dark") kicks off with a reference to Colorado Springs making headlines with its desperate attempt to save money by turning off "a third of its streetlights." Seriously! Have we reached "Atlas Shrugged?"

Quoting Krugman: "We're told that we have no choice, that basic government functions - essential services that have been provided for generations - are no longer affordable. And it's true that state and local governments ... are cash-strapped. But they wouldn't be quite as cash-strapped if their politicians were willing to consider at least some tax increases." With a small lesson in economics, Krugman goes on, "But isn't keeping taxes for the affluent low also a form of stimulus? Not so you'd notice. When we save a schoolteacher's job, that unambiguously aids employment; when we give millionaires more money instead, there's a good chance that most of that money will sit idle."

So, state and local governments are cutting back on infrastructure spending. Whether it's roads or teachers' jobs, cut backs are taking place. Interestingly, on the same day that Krugman is documenting that situation and articulating the ineptitude of our politicians in addressing it, Keith Bradsher comes out with a report in the Times that China will be closing down 2,087 steel mills, cement works and other energy-intensive factories.

Given China's continuing concern for GDP growth that needs to top 8% per year to keep unemployment from increasing (at the rate of 22 million people per 1% GDP drop below 8%), this is serious business and, while not the street lights in Colorado Springs, still an issue where we wonder how the Chinese government feels they can make this work. Energy analysts described it as a significant step toward the country's energy-efficiency goals.

It turns out that China can close factories now, more so than in the past, because a labor shortage in many cities has made it easier for workers, particularly young ones, to find other jobs. The factories being closed are the least efficient ones. The steel mills being closed appeared to emphasize smaller, older mills producing fairly low end grades of steel.

The International Energy Agency in Paris announced last month that China surpassed the United States last year as the world's largest consumer of energy. China passed the U.S. as the world's largest emitter of greenhouse gasses in 2006. That milestone came earlier because of China's heavy reliance on coal.

It is daunting to us that China can shut down 2,000 plus manufacturing plants of any kind in order to comply with its energy-efficiency goals (reduce its carbon emissions per unit of economic output by 40 to 45 percent by 2020, compared with 2005 levels). This while Colorado Springs can't afford to have all its street lights on at the same time.

So, while China has the pressure of achieving its energy-efficiency goals because of the continued rapid growth of its economy (especially in auto sales, where it is now #1 in the world, and home appliances), "America Goes Dark."