Time and Patience Is What Will Fix the Employment Problem
Seems everyone these days has a suggestion for "fixing the jobs problem." Which we'd agree is improving slower than most would like. But in our view, employment recovery comes mostly with time and patience-that it's lagging other economic areas isn't especially new or different. Consider: There's not a historical recession which has seen employment lead the way up-it's always lagged.
Nevertheless, recommendations abound-many suggesting government should "do something" about unemployment. But what, exactly? Short of increasing federal payrolls, government seems fairly limited in its ability to fix much as it relates to employment. Because the reality is the government doesn't really produce anything. It provides some services and regulates and defends the nation, but it doesn't manufacture cars or pencils or butter (last we checked). It doesn't create software, provide venture capital funding or consult other firms on how to run more profitably. So unless that somehow changes, direct government hiring seems a limited source of new jobs.
Rather, we'd argue a different way of thinking about this: Government could unleash the private sector (the engine of U.S. economic growth) by undoing a few things-like decreasing needless government regulation hampering entrepreneurs and businesses. Something President Obama himself pledged to address earlier this year.
And the Office of Management and Budget's (OMB) Cass Sunstein recently reported some success in The Wall Street Journal. Further, President Obama recently asked the EPA to drop tighter standards on ozone regulation. But in our view, thus far, it's barely a drop in the bucket. Consider these facts:
• From 2000-2010, full-time employment at regulatory agencies increased 54.3%-granted, roughly half due to the Transportation Security Administration, but more staffing equals more regulators any way you slice it.
• Regulatory agencies' staffing has increased 13% since President Obama took office-and it's expected to grow 3.9% and 3.5% in 2011 and 2012, respectively. Hardly the direction you'd expect it to move if true regulatory cuts were being made.
• The first issue of the Federal Register printed in 1936 contained 11 pages-it's now over 80,000 pages. And according to Frank Keating, president and CEO of the American Bankers Association, regulators have added another 4,870 pages of proposed or final rules as a result of the Dodd-Frank Act alone.
Regulatory uncertainty shouldn't be underestimated as a hindrance to employment. For one thing, it makes it difficult for businesses to determine each new employee's cost. Consider just one example: the Dodd-Frank bill. It's unleashed a raft of new rules so far. But many still have yet to be written. It's difficult to do extensive business planning when facing rules that may materially change how you do business . . . when you don't even know what those rules are yet and may not for many months. That alone may hinder increased hiring. Further, businesses may face a choice between beefing up compliance staff and increasing production. Both arguably increase staffing, but increased production is the path to faster economic growth because it has the chance to become self-sustaining.
This isn't to say all regulation is bad and new regulation to always be fought. Not at all. In fact, well-reasoned regulation is necessary for a smoothly functioning market as it ensures a level playing field and holds participants to a common standard. What we think is a hindrance is knee-jerk, politically motivated regulation.
But politicians universally feel the need to take some action-after all, it's what they're elected to do. We'd suggest instead politicians try something radical-start a new trend and undo some things (*cough Sarbanes-Oxley, cough*). They may find it goes a long way in encouraging entrepreneurs to hire.
(This article constitutes the views, opinions, analyses and commentary of Fisher Investments as of September 2011 and should not be regarded as personal investment advice. No assurances are made Fisher Investments will continue to hold these views, which may change at any time without notice. In addition, no assurances are made regarding the accuracy of any forecast made herein. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.)