Obama Stumbles On Jobs Secret: Do Nothing

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During the seven months from January 2011 through July 2011, the federal government had its "stimulus" pedal to the metal. Concurrently, the Federal Reserve was conducting its "Quantitative Easing 2" (QE2) monetary stimulus program.

Within those seven months, the Fed increased the size of the monetary base by $669 billion, or 32.9%. At the same time, President Obama had levered Congress into enacting a major new fiscal stimulus program, in the form of a 2-percentage-point cut in payroll taxes that was effective January 1, 2011. The result? During those seven months, total employment (BLS Household Survey) increased by 244,000.

In the seven-month period that followed the supposed monetary/fiscal stimulus frenzy, from August 2011 through February 2012, the Fed did essentially nothing. The monetary base increased by only $14 billion, or 0.5%. There were also no new fiscal stimulus programs. (Obama's "Pass this bill!" $447 billion "jobs" proposal went nowhere.) And, during this time, the total number of jobs increased by 2.6 million, which amounts to the best performance for a seven-month period since June 2000.

The president might consider these facts before basing his reelection campaign on running against a "do nothing" Congress. Thus far, doing nothing is what has worked best for him, and for Americans needing work.

Now does this mean that doing nothing is always the best way to create jobs? No, only that it beats doing something stupid, like enacting huge stimulus programs. Calculated at the labor force participation rate assumed by Obama's $762 billion stimulus program, the unemployment rate for February 2012 was 10.9%. This is a far cry from the 6.1% unemployment rate promised for 1Q2012 by Obama's fantastic fiscal folly.

Reaganomics comprises a strong dollar, marginal tax rate cuts, and reduced regulation. Obamunism is the exact opposite of this. Not surprisingly, Reagan turned in a much better jobs performance during the recovery from the 1981-1982 recession than Obama has during the current (so-called) economic recovery.

During the seven months ending with February 2012, the economy produced a respectable 1.88% increase in the number of jobs. However, this seven-month period commenced more than two years after the official end of the recession. It took Reaganomics only one month after the end of the 1981-1982 recession to begin a seven-month period that generated a 2.20% increase in total employment.

The best seven-month period during the recovery from the 1981-1982 recession saw a 3.37% increase in the number of jobs. For Obama to have replicated this performance, total employment in February 2012 would have had to have come in 2.0 million higher than it actually did. And, the period in question during the Reagan recovery started 5 months after the end of the recession, not 25 months subsequent.

Memo to President Obama and Fed Chairman Bernanke: if you must do something about jobs, do what Reagan and Volcker did. If you can't do that, do nothing.


Louis Woodhill (louis@woodhill.com), an engineer and software entrepreneur, and a RealClearMarkets contributor.  


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