By Haddon Libby
Was Obama’s statement last week that “the private sector is doing fine” a mistaken statement?
Personally, I don’t think it was a gaffe. From his perspective, the private sector is fine with jobs growing albeit at a painfully slow pace. Over the last three years, 4.3 million of the 8.9 million jobs lost have been replaced although most at lower wages with fewer benefits. Public sector jobs, which never experienced the severe decline of the private sector, have gone down by 400,000 in an economy where 130 million are employed.
Obama made it clear that he thinks increased public sector hiring is the need. To achieve this, the federal government would borrow more money that would be funneled to state governments. The problem with this approach is that government jobs are seldom entrepreneurial and do not lead to the robust job growth that the economy needs. Increased government hiring does nothing to improve the job prospects of the majority of those unemployed as 85% of all American jobs are made by the private sector. While the JOBS Act passed by Congress was meant to help small business gain access to more capital, it was done in a manner that will put the average investor at greater risk to fraud and investment losses which may cause more Americans to shun the stock market altogether.
In general, Obama feels that the $800 billion stimulus, $1 trillion plus of annual deficits and $2.3 trillion of quantitative easing by the Federal Reserve were not enough to get our $15 trillion economy back on track. As such, we need to do more of the policies that have proven to be marginally effective and grossly expensive.
The problem with a continuation of Obama’s strategy is that it is creating a tax cliff that grows in size daily. Federal debt has grown 60% since 2009 to over $16 trillion and now exceeds the annual economic output of the country for the first time in history. While federal spending may lessen current economic problems somewhat, it is akin to giving a heroin addict methadone but not addressing the underlying addiction.
Leading economic indicators suggest that the U.S. economy is poised for another recession. Job growth has consistently slipped since February, retail sales and factory orders have declined the last two months, real income is flat or falling and household wealth is at 1992 levels. The national U-6 unemployment rate is at 14.8% with 24% of all households having at least one person looking for work. Interestingly, economists are now calling the current economic environment a growth recession, whatever that means.
Locally, the true unemployment rate is 20.8% for the state, 22.7% for Los Angeles County and an estimated 25% for Riverside County. Despite unemployment levels that rival the Great Depression, the Obama Administration has used this period of “economic stability” to discontinue extended unemployment benefits to 100,000 Californians. While job growth in the hotel and business sectors here in Riverside County is improving, it is not at a high enough rate to solve current economic woes or keep Riverside County from having the highest foreclosure rate of any county in the United States.
With a slowdown in Asian economies, the Indian economy performing at nine-year lows, an economic slowdown in China, Australian and South Korea, widespread problems in Africa and the systemic problems faced by many countries in Europe, it is difficult to see further improvement here in the U.S. in the near future as the world economies are interlinked. When you add in the lack of a tax policy and tax rate uncertainty coming from Washington, a significant improvement in the U.S. economy in the near-term is looking increasingly unlikely.
Put in context of the looming storm clouds facing our economy, Obama was right, “the private sector is doing fine”. It is the American worker that is struggling and at risk of getting hurt by the storm.