Obama and Bernanke Are Sucking the Life Out of U.S. Workers
The October "Employment Situation" report released by the BLS on Friday was nothing short of catastrophic.
Forget the Establishment Survey's report of 204,000 new jobs. Changes in seasonal adjustments, coupled with BLS' "birth-death model," rendered this number little more than fantasy. The Household Survey told a very different tale.
Even after adding back into the "employed" column the 204,000 furloughed federal employees that had been counted as unemployed, the number of full-time-equivalent (FTE)* jobs plunged by 503,000 during October. This was the biggest one-month drop since December 2009.
The not-so-hidden story in President Obama's so-called "economic recovery" has been the unprecedented exodus of Americans from the labor force. This mass migration into idleness turned into a stampede during October, with 720,000 people giving up on looking for work. The last time labor force participation was this low was March 1978, when baby-boomer women were streaming into paid employment.
Adjusted for the federal furloughs, the "headline" (U-3) unemployment rate fell from 7.24% in September to 7.15% in October. (As reported, without the furlough adjustment, the U-3 rate was 7.28%, which the BLS rounded to 7.3%.)
The drastic drop in labor force participation, which stems from the Obama-era economic stagnation and expanded welfare-state alternatives to working, has rendered the U-3 rate essentially meaningless. Adjusted to the labor force participation when George W. Bush left office, October's unemployment rate was 11.3%, which reflected a huge 0.4 percentage point jump from the previous month.
The broadest measure of labor force underutilization, the "SGS Alternate Unemployment Rate," published by Shadow Government Statistics, rose to an all-time record high of 23.5% in October. Even after adjusting for the federal furloughs, America moved 629,000 FTE jobs further away from full employment (to a total of 16.4 million).
Bottom line: in terms of jobs, there has been no economic recovery at all. The adjusted unemployment rate, the SGS Alternate Unemployment Rate, and the distance from FTE full employment are all worse today than when Obama's so-called "economic recovery" started, 52 months ago.
Oh, and real household incomes fell by 3.95% during our first 51 months of "recovery."
But wait! Real GDP (RGDP) growth "soared" to 2.8% in the third quarter. Doesn't that mean that the recovery is real?
Well, it's sort of real if you own a lot of stock. The Dow Jones Industrial Average rose by 79% during the first 51 months of the Obama recovery.
But, no, we aren't experiencing a true economic recovery, the kind that benefits everybody.
The Reagan recovery from the 1981 - 1982 recession was a true recovery. During the first 17 calendar quarters of the Reagan recovery, RGDP grew at an average annual rate of 5.02%. In contrast, the RGDP growth rate for the comparable period of the Obama recovery was only 2.26%.
The higher growth rate under Reagan made all the difference in the world. During the first 17 quarters of the Reagan recovery, the number of FTE jobs jumped by 13.7%, vs. a pathetic 3.8% gain during the comparable period under Obama. Per capita RGDP rose by 18.6% vs. 6.5%.
To be sure, stockholders also did well during the Reagan recovery. The Dow went up by 120% during the first 51 months, vs. 79% for the comparable period under Obama. Also, the gain in wealth was completely real under Reagan, while under Obama it was mostly "money illusion."
During the first 17 quarters of the Reagan recovery, the dollar gained 8.7% in value in terms of gold. As a result, the Real Dow, which is the Dow divided by the price of gold, rose by 139.4%. During the comparable period under Obama, the dollar lost 30.3% of its value vs. gold, so the Real Dow gained only 24.9%.
The biggest single difference between Reagan's economic policies and Obama's lies in the area of monetary policy. Reagan wanted a strong dollar and the Fed delivered one. Obama wants a weak dollar, and the Fed has obliged.
During the first 17 quarters of the Reagan recovery, a 40.4% increase in the monetary base produced a 40.0% rise in nominal GDP (NGDP). During the comparable period under Obama, Ben Bernanke's unconventional monetary flailing yielded only 17.5% more NGDP from 105.2% more money.
What did Bernanke's QE2/QE3 dollar deluge accomplish if it didn't increase NGDP? Well, it drove up the price of commodities, starting with gold, which rose by 43.4% during the period (vs. falling by 8.0% during the comparable period under Reagan).
This having been said, Obama's regulatory jihad against business, Obamacare especially, has also been crushing the employment prospects of ordinary Americans. Risk equals cost, and Obamacare has produced a huge increase in the risks associated with employing people.
If you increase the cost of anything, people will buy less of it. Higher labor costs mean lower labor demand, i.e., slower growth in FTE jobs.
So, what is President Obama's answer to this problem? Raise the minimum wage by 38%, to $10.00/hour!
American workers are having the life squeezed out of them by an economic vise with three converging jaws. Monetary policy is too chaotic, tax rates on savings and investment are too high, and the regulatory state (Obamacare above all) is running amok.
Capital investment drives growth in RGDP, jobs, and incomes. Right now, it takes about $268,000 of nonresidential assets to support one average FTE job, and to add about $129,000 to GDP. Unfortunately, under current economic policies, companies would rather buy back their shares than make tangible investments in growth.
Here is an illustration of the damage being done by the Obama/Bernanke policies.
In 2Q2013, the number of FTE jobs went up by 329,000. Most of these were in lower-wage industries. During these three months, however, the companies in the S&P 500 spent $122.8 billion buying back their own shares. This amount of capital invested in nonresidential assets could have created about 458,000 average American FTE jobs.
Share repurchases are not "bad," and they don't mean that a company "doesn't care." They simply reflect a firm's judgment that, under current economic conditions and policies, buying back their own equity would do more to boost shareholder value than would the real expansion projects available to them.
If we want more capital investment, jobs, and economic growth in America than we are getting now, we must make the U.S. a friendlier place for savings and investment. It's just that simple.
Obama and Bernanke's economic policies are crushing the life out of American workers. We need a "return to normalcy" on monetary policy, the elimination of our corporate income tax, and a moratorium on regulations, including Obamacare. These changes would produce the explosive economic recovery that our nation so desperately needs to make up for nearly six years of stagnation.
*FTE jobs = full-time jobs + 0.5 part-time jobs
