Tuesday, July 8, 2014

Half-full or Half-empty?

“Corporate profits are up, stock market is up, housing is improving. Unemployment is down. The deficits have been cut in half. We’re making progress, but we still have a situation where those at the top are doing as well as ever but middle-class families all across the country are still struggling to get by. There are people who are working hard, they believe in the American Dream—it feels sometimes like the system is rigged against them.”
—President Obama, at the Francis Scott Key Bridge on July 2

Was I too harsh in my previous post about the Obama Adminstration’s performance in managing the U.S. economy? After all, when it came to the most recent economimc data, the majority of the “mainstream” American news outlets I heard were focused on the 288,000 jobs added in June and the drop in unemployment to 6.1 percent. And that is indeed good news.

I instead focused on the contracting of the economy in the year’s first quarter—a worrisome 2.9 percent. Many professional news explainers dismissed that as a fluke caused by unusually harsh winter weather. Even so, it is never a good sign when the economy shrinks and, besides, aren’t these numbers supposed to be “seasonally adjusted” to account for things like winter anyway?

Nevertheless, people are right to put most of their focus on the jobs numbers. While the president—and many others—may be happy to tout the soaring stock market, that is mainly benefiting the investor class. And, to the extent that many middle class Americans have money invested in equities directly or through retirement plans, yes, it is good that those investments are doing well. But the well-being of the country really depends on how many people are usefully participating in the economy. In other words, the best indicator of how people are doing generally is the unemployment rate. Having said that, though, the GDP number for better or worse is one of our best indicators of the overall health of the economy and how it will perform going forward.

As I say, it is great that the unemployment rate has come down from a high around 10 percent five years ago. But the celebratory mood is tempered by the fact that the job participation rate has shrunk a lot (thereby making the unemployment rate look better than it really is), that more people who want full-time work can find only temporary or part-time work, and that some groups—notably African-Americans—still continue to have much higher unemployment than the general population. Let us also not forget that it was not that many years ago that 6.1 percent would have been seen as a really high unemployment rate. It is only because of where we have been that it now seems “low.”

Another thing to consider: some observers have noted that the “better than expected” job numbers coincided with the end of extended unemployment benefits. This is confirmation that the payment of unemployment benefits, while the right and compassionate thing to do, is also inevitably an incentive for some to put off going back to work.

As the president made clear in his remarks at the Key Bridge, he is cognizant of all the negatives persisting in the economy. But he continues to insist or imply that everything would be just fine if only Congress would do things like authorize more money for the Highway Trust Fund. That is fundamentally dishonest. There may well be good reasons to authorize the money, but it will not make a significant difference in most people’s lives. His glib dismissal of deficits as being “cut in half” may be accurate in the short term, but it amounts to wilful disregard of the fact that government programs are still on a trajectory to bankruptcy over the long term, and that will have a lot more to do with real people’s standard of living than any one year’s contentious congressional expenditure.

Instead he sticks to the same script that modern liberals have always followed when campaigning against conservatives. He paints the country’s economic problem as consisting mainly of government stinginess. The other side, on the other hand, too often responds by suggesting that recipients of government spending are undeserving or unworthy. The real issue is that, over the years, the government has made a lot of promises to a lot of people and it has a moral obligation to keep those promises. That means reforming those programs so that they do not run out of money.

The only way to do that in the long haul is to have as many people as possible participating in the economy. The current job numbers show that the country has a very long way to go in that regard and, unfortunately, the president seems content to simply continue what he’s already doing—or, more accurately, not doing.

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