Denial: a River Running through the White House

The May jobs report released this morning by the Bureau of Labor Statistics wasn’t as strong as any of us had hoped it would be.
 
Well, actually, it was awful. 

The expectation was for approximately +155,000 new jobs.  The actual number was +66k.  The unemployment rate reversed its trend and ticked up to 8.2% in May from 8.1% in April.  With favorable labor market conditions (more in a moment), we should have been adding 300-400k per month in this recovery.    

Labor Secretary Hilda Solis could only blame congress for not doing more during her interview on CNBC.  She also repeatedly pointed out that the economy had created millions of jobs since the president took office, attempting to put 2012’s dramatic slowdown into a type of perspective.  Even Alan Krueger, Chairman of President Obama’s Council of Economic Advisors can’t resist the urge (pressure?) to blame prior conditions, and keep blindly following the president’s prescription for growth. 

In other words, the pain isn’t our fault, but to the extent that anyone has benefited from job growth, the Obama administration deserves credit, oh and you really need to let us keep keep pulling more of the same kinds of levers we've been trying.

Please.

Let’s get some things straight:

1.      The government does not create private sector jobs.  Period.  The government can borrow money and spend that money on projects (so called “investments”), which may, or may not, have a positive impact on the decisions of private sector employers to hire workers.

2.      To the extent that we’ve had positive economic growth and a better hiring environment, it is because those private sector job creators were incentivized to hire people by the prospect for increased profits.

3.      Government intervention in the economy can only create incentives or disincentives for private sector employers.  Government operates at the margin, but it is never the primary reason for growth or contraction, for increasing or decreasing unemployment rates.

4.      You’ll hear more about QE3 now, but the Fed’s hands are tied.  The Fed creates more dollars (POOF!), then buys more bonds from banks, giving the banks cash to lend; the banks look for credit-worthy corporations and consumers who want loans; banks can’t find nearly as many credit-worthy borrowers many as previously and when they do, those corporations don’t want to borrow because they have no idea what the rules of the game are, and they’re not going to spend money on expanding (i.e., building stuff and hiring people) until they can confidently work a 5 year strategic plan; the banks have do something with their cash, so they park it at the Fed, which earns them 25 bps.  Right back where we started: bupkis.    

5.      Congress could spend even more money (which it doesn’t have) in the hope that it will incentivize private sector employers to hire people, but there is still no guarantee that any businesses will actually want to hire anybody.  Nor do we have any indication that the federal government knows where to spend the money once it borrows it.  One of the main lessons from Solyndra was that the smartest private equity guys are just not employed by the federal government.   

Let’s imagine we’re playing Monopoly and you land on Boardwalk.  You pull out your $400 and tell me you’d like to buy it.  I say “Sure! But, I need to tell you that some of the rules have changed.  First of all, the price may say $400 on the card, but it’s actually $500.  Also, if you want to put up any houses or hotels on it, you need to know that it’s going to cost you something more, but I’m not yet sure what either the additional cost per house or limitations on the number of houses will be.  Did I mention that I've printed up some more Monopoly money for my use?  Also, your Chance cards may not be valid...I'll get back to you.”

Would you keep playing Monopoly with me if I pulled that kind of stunt?  Of course not.  

Yet that’s the presumption of all of this nonsense from Washington: we can change rules, raise costs, point fingers, borrow beyond sanity, generate trillions of new dollars from thin air, invest in private enterprise despite an utter lack of expertise, and all of this is going to incentivize rational entrepreneurs to hire people.

Please.

Sir Winston Churchill famously said: “The Americans will always do the right thing…after they’ve exhausted all the alternatives.”  For the sake of the unemployed folks out there, let’s hope we’re getting close to doing the right thing.