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American Issues: Unemployment, Romney, GOP

Prof. Peter Morici - 2/3/2012

I. Unemployment Falls to 8.3 Percent on Stronger Job Gains


The economy added 243,000 jobs in January, and unemployment fell to 8.3 percent. Going forward unemployment is not likely to fall much further and could rise again.

Fourth quarter growth was stronger as the global economy recovered from first half disruptions such as the earthquake in Japan, but going forward economists expect growth to slow to about 2 percent.

Job growth in the range of 130,000 should be expected to barely accommodate labor force growth but not much lower the unemployment rate. That is hardly a pace that will restore economic health, or validate President Obama’s heavy intervention in the economy and industrial policies in the upcoming Presidential campaign.

The unemployment rate would be higher but for the fact that many adults have quit looking for work altogether, and the adult labor force participation rate remains depressed. In January, working age adults not participating in the labor force—those neither employed nor looking for work—increased by 88,000.

Also, it appears many unemployed professionals have established home-based businesses that really don’t provide full time employment but do take workers off the unemployment rolls. Many likely have one or two days of paid work each week, and spend the balance of their time looking for business or idle.

Strong gains were notched in retail and wholesale trade, warehousing and transportation, leisure and hospitality, and health care and social services. Information technology and financial services registered substantial losses.

Manufacturing added 50,000 jobs and construction added 21,000.

Gains in manufacturing production are not accompanied by even stronger improvements in employment largely because so much of the growth is focused in high-value activity. Assembly work, outside the auto patch, remains handicapped by the exchange rate situation with the Chinese yuan.

The situation with the yuan is the single largest impediment to more robust growth in manufacturing and its broader multiplier effects for the rest of the economy; the Obama Administration indicated over the holidays it has no intention of challenging China on this issue, and it enjoys the unlikely support of Speaker John Boehner.

Government employment fell by 14,000 as private sector jobs added 257,000. Falling home prices translate into lower assessments and property values with considerable lag in most communities. In 2012, the housing recession will signficantly reduce local tax receipts and employment. Coupled with federal budget cutbacks, government employment should fall by about 20,000 a month through the end of 2012.

The private sector less the heavily subsidized health care and social services industries, and temporary businesses services, added 197,000 jobs. In the months ahead, gains in core private sector employment must substantially improve if the economy is to halt the decline in real wages and provide federal, state and local governments with adequate revenues, and that is not happening fast enough.

The economic crisis in Europe and mounting problems in China’s housing sector and banks worries U.S. businesses about a second major recession and discourages new hiring. The U.S. economy continues to expand but is quite vulnerable to shock waves from crises in European and Asia.

Factoring in those discouraged adults and others working part time for lack of full time opportunities, the unemployment rate is about 15.1 percent. Adding college graduates in low skill positions, like counterwork at Starbucks, and the unemployment rate is closer to 20 percent

Prospects for lowering those dreadful statistics remain slim. The economy must add 13 million jobs over the next three years—361,000 each month—to bring unemployment down to 6 percent. Considering continuing layoffs at state and local governments and federal spending cuts, private sector jobs must increase about 380,000 a month to accomplish that goal.

Growth in the range of 4 to 5 percent is needed to get unemployment down to 6 percent over the next several years. In fourth quarter of 2011, the economy grew at about 3 percent but that is expected to slow to about 2 percent in 2012.

Growth is weak and jobs are in jeopardy, because temporary tax cuts, stimulus spending, large federal deficits, expensive and ineffective business regulations, and costly health care mandates do not address structural problems holding back dynamic growth and jobs creation—the huge trade deficit and dysfunctional energy policies.

Oil and trade with China account for nearly the entire $550 billion trade deficit. This deficit is a tax on domestic demand that erases the benefits of tax cuts and stimulus spending.

Simply, dollars sent abroad to purchase oil and consumer goods from China, that do not return to purchase U.S. exports, are lost purchasing power. Consequently, the U.S. economy is expanding at 2 percent a year instead of the 5 percent pace that is possible after emerging from a deep recession and with such high unemployment.

Industrial policies, like federal bailouts for General Motors and Maryland’s efforts to save an aging steel mill at Sparrows Point won’t fix the jobs market—those just shift employment from more competitive enterprises. Payroll tax holidays are similar band aids—those buy jobs today at the expense of cutbacks in 2013 and the years that follow.

Without prompt efforts to produce more domestic oil, redress the trade imbalance with China, relax burdensome business regulations, and curb health care mandates and costs, the U.S. economy cannot grow and create enough jobs.

II. Romney Gets It, Many Republicans Don't


The 2012 presidential campaign offers Republicans the opportunity for a robust debate on the roles of free markets and state intervention in defining the opportunities the economy offers Americans.

From stimulus to Solyndra, Obama Administration failures create receptive ears for more conservative solutions among moderate voters. However, those voters do remember George W. Bush as a free spender and turning a blind eye to Wall Street abuses that still leave the economy limping.

To win, the GOP nominee must convince moderates he will eliminate unproductive government spending and regulations, but also rein in marketplace abuses. Campaigning on those issues, Mitt Romney could win, but his chances are hurt by Republican rivals and social conservatives who refuse to accept political facts.

Mitt Romney is fundamentally a conservative politician. He wants to enforce a level playing field in trade with China and rely on international competition to recultivate American competitiveness. He would open up domestic petroleum development and forthrightly deal with environmental risks instead of shifting those to developing countries, as is the policy of President Obama.

Also, repealing Dodd-Frank would recognize its reforms have all but dried up private mortgage lending and credit for America’s best jobs creators—small and medium sized businesses. Sending federal dollars and decision making authority to the states to cope with runaway health care spending, instead of imposing costly mandates, would recognize the fallacy of federal omniscience.

However, Mr. Romney is a politician with a history. He was a Republican governor in a very liberal state—he made policies on health care and other issues in the context of Massachusetts. Hence, he is handicapped in ways Messrs Obama and his remaining GOP rival are not—he actually had to run a state before offering to run the country. To succeed, he had to make compromises that reflected the political culture of that state.

For Republicans to fret that a President Romney would deliver a federal government as liberal as the Bay State during his tenure is folly and self destructive. For similar reasons, Mr. Romney’s federal government would not be as conservative as his platform aspires. The U.S. Congress is simply more moderate than the Massachusetts legislature, but not nearly as conservative as many GOP activists would like.

Obama care might be disassembled but it wouldn’t be demolished. Federal policy on social issues like funding for birth control and abortion would be more moderate—not hard left as Mr. Obama’s elitist advisors have engineered.

Social conservatives need to accept what is possible or risk getting nothing. Florida demonstrated Mr. Romney is capable of carrying just about every demographic slice—from evangelicals to secular moderates—because economics will decide the election. Bain Capital, notwithstanding, Mr. Romney looks pretty good.

Social conservatives must reckon with hard facts. In November, Americans will vote their pocketbooks, not their social conscience. Harping on abortion, gay marriage and the like would lose more votes than garner for the Republican nominee.

With the exception of federal financing for family planning—something most Americans prefer not to deny poor women—critical social questions like limits on abortion and gay marriage will be determined by state legislatures. If conservatives prevail in statehouses, those laws will be tested in federal court; then judges appointed by a President Romney would be more sympathetic to their values than those appointed by President Obama.

The endless attacks on Mr. Romney’s conservative credentials and counterproductive obsessions with social issues only serve to prolong the doomed candidacies of his rivals, which are rapidly degenerating into journeys of personal vanity.

If Mr. Romney’s rivals are serious about creating a better America, then its time to shift the debate—beginning with their ads—to explaining what ails the American economy and specific solutions.

Mr. Romney’s platform articulates his diagnosis and offers realistic remedies in considerable detail. In contrast, Messrs Gingrich, Paul and Santorum serve up nostrums, platitudes, and unrealistic proposals like a Chinese menu of income tax systems and a return to the Gold Standard that will never come to pass.

I tell my students, to succeed you must address the world as you find it, not as you wish it would be. Mr. Romney gets it, but too many Republicans don’t.

III. GOP Must Address the World as It Is, Not as It Thinks the World Should Be


The 2012 presidential campaign offers Republicans the opportunity for a robust debate on the roles of free markets and state intervention in defining the opportunities the economy offers Americans.

From stimulus to Solyndra, Obama Administration failures create receptive ears for more conservative solutions among moderate voters. However, those voters do remember George W. Bush as a free spender and turning a blind eye to Wall Street abuses that still leave the economy limping.

To win, the GOP nominee must convince moderates he will eliminate unproductive government spending and regulations, but also rein in marketplace abuses. Campaigning on those issues, Mitt Romney could win, but his chances are hurt by Republican rivals and social conservatives who refuse to accept political facts.

Mitt Romney is fundamentally a conservative politician. He wants to enforce a level playing field in trade with China and rely on international competition to recultivate American competitiveness. He would open up domestic petroleum development and forthrightly deal with environmental risks instead of shifting those to developing countries, as is the policy of President Obama.

Also, repealing Dodd-Frank would recognize its reforms have all but dried up private mortgage lending and credit for America’s best jobs creators—small and medium sized businesses. Sending federal dollars and decision making authority to the states to cope with runaway health care spending, instead of imposing costly mandates, would recognize the fallacy of federal omniscience.

However, Mr. Romney is a politician with a history. He was a Republican governor in a very liberal state—he made policies on health care and other issues in the context of Massachusetts. Hence, he is handicapped in ways Messrs Obama and his remaining GOP rival are not—he actually had to run a state before offering to run the country. To succeed, he had to make compromises that reflected the political culture of that state.

For Republicans to fret that a President Romney would deliver a federal government as liberal as the Bay State during his tenure is folly and self destructive. For similar reasons, Mr. Romney’s federal government would not be as conservative as his platform aspires. The U.S. Congress is simply more moderate than the Massachusetts legislature, but not nearly as conservative as many GOP activists would like.

Obama care might be disassembled but it wouldn’t be demolished. Federal policy on social issues like funding for birth control and abortion would be more moderate—not hard left as Mr. Obama’s elitist advisors have engineered.

Social conservatives need to accept what is possible or risk getting nothing. Florida demonstrated Mr. Romney is capable of carrying just about every demographic slice—from evangelicals to secular moderates—because economics will decide the election. Bain Capital, notwithstanding, Mr. Romney looks pretty good.

Social conservatives must reckon with hard facts. In November, Americans will vote their pocketbooks, not their social conscience. Harping on abortion, gay marriage and the like would lose more votes than garner for the Republican nominee.

With the exception of federal financing for family planning—something most Americans prefer not to deny poor women—critical social questions like limits on abortion and gay marriage will be determined by state legislatures. If conservatives prevail in statehouses, those laws will be tested in federal court; then judges appointed by a President Romney would be more sympathetic to their values than those appointed by President Obama.

The endless attacks on Mr. Romney’s conservative credentials and counterproductive obsessions with social issues only serve to prolong the doomed candidacies of his rivals, which are rapidly degenerating into journeys of personal vanity.

If Mr. Romney’s rivals are serious about creating a better America, then its time to shift the debate—beginning with their ads—to explaining what ails the American economy and specific solutions.

Mr. Romney’s platform articulates his diagnosis and offers realistic remedies in considerable detail. In contrast, Messrs Gingrich, Paul and Santorum serve up nostrums, platitudes, and unrealistic proposals like a Chinese menu of income tax systems and a return to the Gold Standard that will never come to pass.

I tell my students, to succeed you must address the world as you find it, not as you wish it would be. Mr. Romney gets it, but too many Republicans don’t.