Posts
"The truth of the matter is," President Obama
said, "we've created 4.3 million jobs over the last 27 months, over
800,000 just this year alone. The private sector is doing fine."
According to Peter Ferrara, Forbes magazine contributor, the truth of the matter is President Obama’s
unemployment rate is stuck at 11% in real terms; 23 million Americans are
unemployed, underemployed or have dropped out of the labor force; the economy grew
at a meager 1.9% in the first quarter; the median household income has dropped
10% over the last four years; and we have experienced record home foreclosures.
To use the President’s own phrase – “Let me be clear” -- the only way one can reconcile the preceding
two positions is by solving the problem at a higher level than it was “created.”
So let’s do a little engineering analysis … you know … make sure the President’s
assertion is in effect not the engineering equivalent of a perpetual motion
machine: that is, it does not violate the laws of physics and is mathematically
rigorous. Then, we can compare it to the facts.
Here we go!
First, it does not matter how many jobs the President has “created.” It only matters how many NET jobs exists for
those looking for work. The unemployment
rate measures this, with one exception. As
I understand the calculation, it does not count the people who have become so
discouraged they have stopped looking for a job. The effect is to understate the unemployment
rate. So for example, suppose this month
you have 3 people who are unemployed out of 10, and next month one person stops
looking for work. The first month, the
unemployment rate is 30% (3/10). The
second month it is 22% (2/9), all other things being equal.
Second, the President claims these jobs have been created
over the past 27 months. Using a
standard Gregorian calendar, he has been president since Jan 20, 2009. That means as of May 20, 2012, he has been
President 40 months. Wow, what happened
those first 13 months? The engineer in me wonders if someone is fudging the
data.
Third, the President does not provide any historical context
of what one should expect when the economy comes out of a recession. Here are some facts that should be considered
in evaluating his rosy conclusion that all is well.
·
The National Bureau of Economic Research, the
recognized scorekeeper of when recessions start and end, declared this latest
recession over in June, 2009, which would make it the longest recession since
the Great Depression.
·
The historical precedent in America is the deeper
the recession the stronger the recovery, as the American economy accelerates to
return to its long term trendline.
·
Based on that precedent, we should be in the
third year of a raging recovery boom by now.
But instead we have suffered the worst economic recovery from a
recession since the Great Depression.
So let’s put all this together:
·
In December 2008, the unemployment rate 7.3%; in
December 2011 it was 8.5%. As of April
2012, data shows it is 8.1%.
·
In April 2012, 52 months after the recession
started, 115,000 new jobs were created but the labor force shrank by another
342,000 workers, and the unemployment rate reportedly declined from 8.2% (March)
to 8.1% (April). Without the decline in
the labor force, unemployment would have risen in April 2012 to 8.3%.
·
The labor force in April 2012 is actually
365,000 workers smaller than it was in June, 2009 when the recession supposedly
ended. Counting population growth since June
of 2009, the economy is actually missing 7.7 million workers that would be in
the work force if the labor force participation rate had remained the same
since the supposed end of the recession three years ago.
Compare and contrast this to the Reagan recovery. After the Reagan recovery started, millions
more people wanted to work than before the recession started. Despite this large influx of new job seekers,
the unemployment rate fell from 10.8 percent at the end of 1982 to 7.2 percent
by the presidential election in 1984. Compare
Regan’s second year (September 1983) results to President Obama’s third year (April
2012) results in which 115,000 new jobs
were created: Reagan’s economy created 1.1 million jobs in that one month
alone, 10 times as much.
The bottom line is this: the Wall Street Journal reported in their May
5-6 weekend edition, “Nearly three years into the [Obama] recovery, the U.S.
still employs five million fewer workers than before the recession.”
Now put a spin on that, Mr. President.
