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Thoughts from the Frontline

What Happened to the Jobs?

July 8, 2011

Choose your language

The US jobs report came out this morning, and it was simply dismal. This week we look at not only the jobs report but also “what-if” proffers for the US and global economies. There’s a lot to cover, so let’s jump in.

First, there were only 18,000 jobs created in June, the lowest since September 2010. While private employment rose by 57,000, government workers dropped by 39,000, continuing a trend as governments at all levels work to cut their budgets. Long-time readers know I think it is important to look at the direction of the revisions, and we got no help. May was revised down by 29,000 jobs and April a further down 15,000.


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Stephen Decruz

July 17, 2011, 9:37 p.m.

To suggest that the stimulus has not created jobs defies the facts. There is an aggregate demand shortfall and the small business will not be hiring in this scenario. Small business can avoid paying higher taxes simply by setting up their business as corporations or reinvesting their profits. Tax increase for the rich is not job-killing but to address the imbalance. Why are the working and middle class paying more in taxes proportionately while the rich continues to enjoy the benefits of a civil society without paying their fair share?

Peter J Taylor

July 16, 2011, 2:56 p.m.

Thank you, David Rosenstock, for your reply to my question on July 10. I accept your answer to my example of a hypothetical transfer of school transport costs from the government to parents: i.e. that the fall in government spending will be balanced by the rise in private expenditure (synonymous with consumption), so GDP will remain the same. And the third change, the reduction in taxation, is (therefore correctly) not part of the equation. So, overall, people will be neither worse nor better off. In practice, poor parents with lots of children would feel financially squeezed, whilst people with no children would be more affluent.

Jeff Little

July 13, 2011, 4:57 p.m.

The graphs concerning unemployment duration are very interesting.  Thanks for posting them.  I think that the big reason you see the recent aberation is this is the only period of unwinding from an asset bubble.  If you look at other economies with low tax rates combined with high long-term average P/E rates, I think that you will see similar ostrich neck graphs.

The problem with the Ohio state paper is it assumes a causal relationship based on things happening at the same time.  The deficit from the previous year minus the stimulus is correlated with job growth and they reach the conclusion that low stimulus states had more growth and this was causative.

“On the other hand, employment in HELP services is 772 thousand persons lower because of
the Act. This is consistent with the raw data represented visually in Figure 5. States with weak
budget positions, after including ARRA aid, tended to have greater employment growth in the
HELP service sector.”

It would be just as easy to conclude, for example, that high HELP growth states were not as effective at getting ARRA aid.  Or there might be some other comonality between the states that would cause both effects.

To get results you can be confident of, you need a more random sample, and preferably studies in which short term results match long term trends.  There is far too much wierd stuff that can happen if you only look at the short term.

Robert Kenagy

July 12, 2011, 9:46 a.m.


In this article, you appear to embrace the “Republican” position of no increase in taxes.  Virtually all economists think there should be both spending cuts and tax increases.  80% of Americans think there should be both (See David Brooks in NY Times on 7/12).  The Canadians did both in the 90’s.  Their situation was worse than ours is now.  They cut spending and raised taxes.  Why do you not support this?

Robert Kenagy

Mike Lehner

July 11, 2011, 12:42 p.m.

Like a few others, I am disappointed at your QA of Larry Lindsey’s quote.  You must have been in a rush.  He created a false comparison of the “cost” of a stimulus job by ignoring the fact that there was actual infrastructure created by the stimulus (though not as much as there should have been) rather than just being spent on salaries.

Also, if your argument against raising taxes is that it would harm the economy, then the corollary would be that lowering taxes would help the economy.  You didn’t present any discussion of the economic benefit from the stimulus tax cuts. 

I recall you state a 3:1 economic benefit of tax cuts vs a 1:1 (or less) for government spending.  So, where’s the almost $1 trillion boost to our economy from the stimulus tax cuts that we’re due? 

I have to disagree with you about raising taxes on “small business owners” who make more than $250k in taxable income per year.  With all of the deductions available in the tax code, if you can show me a struggling small business owner who has $250k in TAXABLE income, I’ll show you a small business owner who needs a new tax accountant and attorney.  The fact that is lots in this discussion is that the $250k is not gross revenue or gross income, it’s taxable income!

Anyways, I hope this is a better week for you.  It’s tough for us kids right now.

david rosenstock

July 10, 2011, 10:43 p.m.

Peter, good post.  I think in your example the government provided bus transport (G) would shift to consumption (C)—so GDP would in fact be unchanged.  Make sense?

David Rosenstock

Jeff Martin

July 10, 2011, 6:42 p.m.

The jobs are lost forever and will never come back. They needed to go. You were correct in pointing out that most of the jobs are hourly wage unskilled jobs in healthcare and services. We have become a nation of hourly workers and salesmen frantically trying to sell each other things we don’t need to make a profit and survive.  This is what deregulated capitalism has created.  We have had at least three major banking crises since Reagan deregulated the financial industry. Each time, the taxpayers have bailed them out and they have returned even more powerful, having direct influence on domestic fiscal policy. Bankers are now calling the shots and banks do not need very many humans to make money.  As movie watchers, we watched with interest at Gordon Gekko in Wall St.  Ladies and gentlemen…he was real. He and his ilk created the M&A frenzy that eliminated competition and called it productivity.  I remember being on Wall St in the early 80’s.  There was Shearson, Lehman Bros, Salomon Bros, Bear Stearns, E.F.Hutton, Dean Witter, DLJ…remember? They are all gone in the name of “efficiency”.  I worked at Shearson which became Shearson Lehman, which became Shearson Lehman Hutton and finally…Shearson Lehman Hutton, an American Express company.  Redundant employees were eliminated and then later automated or outsourced. Traders on stock and commodity exchanges have been replaced with machines that don’t need health benefits and pensions.  The passage of NAFTA and the repeal of Glass-Steagal let Pandora out of the box and created a new class of Americans…the consumers.  John, American jobs will never return because Americans are too costly and underskilled…and the powers that be like it that way.  The noise coming out of Washington from either side is just lip service.  Tax cuts do not create jobs, nor does government spending.  Competition and innovation supported by capital creates jobs. The “jobs creating” proposal to tax offshore deposits 5% if they are brought back to America is ludicrous.  The corporations will just use the funds for dividends.  We have eliminated domestic competition in all the major industries and now have 5 banks controlling 70% of all the deposits in America. A handful of health care companies control how much our health care costs. Hedge funds are running raw materials prices at the expense of the public.  Why, if corporate profits are soaring without American employees, would any company want to hire Americans? Chinese, Indonesians, Mexicans, Salvadorans and Indian workers cost far less and there are far fewer regulations in those countries.  Americans are truly unnecessary to the bottom line, and that’s what matters most of all…right?. 

Jeff Martin

Peter J Taylor

July 10, 2011, 4:24 p.m.

Dear John,
I have for a long time been puzzled by the equation GDP = C (total consumption) + I (Investments) + G (government Spending) + net exports. Surely taxation should appear as an offset to government spending. Or does G mean NET government spending, i.e. the excess of spending over taxation?
Suppose the government changes (either up or down) the amount it spends, but changes taxation by the same amount. Why should only the change in spending have a direct effect on GDP, and the change in taxation have no effect?
To give an example, suppose the government decides to reduce its spending by making parents pay for whatever school bus transportation has hitherto been free. And they lower taxation by an equivalent amount. Government spending is reduced, but according to your equation, GDP is also reduced. Why should that be? Surely the school bus service costs the population just the same, and the children receive just the same service.
Kind regards, Peter J Taylor, UK

Don Moulton

July 10, 2011, 2:02 p.m.

Hi John,

Insightful article, but flawed on a few levels.

First, a significant part of the stimulus was tax cuts.

Second, as your charts show, most of the job losses came under Pres. Bush. Pres. Obama hasn’t been able to right the ship, but let’s separate cause from effect.

Finally, tax cuts, despite the often repeated rehtoric, does not create jobs - especially tax cuts for the wealthiest 1%.

No one hires, based on a higher or lower tax rate; we hire based on demand and don’t hire or even lay off workers based on lack of demand.

Pres. Bush had the worst 8 year job creation record of any 8 year President since WWII despite also having the lowest tax rates since WWII.

Pres. Obama, with the help of GOP strong arming, has simply followed the same game plan, with again, no job creation to speak of.

Job costs (salaries, etc.) are PRE-TAX, not post-tax. Lower taxes do not create an incentive to hire, period.

Richard Kellogg

July 10, 2011, 12:26 p.m.

The e21 Team cite a study by Conley and Dupor that claims the spending part of the 2009 stimulus actually resulted in a net loss of jobs.  People who think stimuli are a waste of money are certainly entitled to their opinion, but the suggestion that stimuli are actually destructive stretches credulity beyond all comprehension.  Citizens are not yet marching in the streets carrying torches and pitchforks and demanding more austerity.

Mark Zandi writes “Itâ??s the small businesses that Treasury Secretary Geithner said must be taxed more to support government that provide the needed jobs…”.  I was puzzled by this too until I looked closer.  Geithner was repeating the president’s desire to raise rates on those making over $250k per year, which includes about 3% of small business.

I side with Mauldin’s earlier statements that the country cannot reach sustainability with austerity alone.  It must [regrettably] include new revenues.

All-in-all this edition of “Thoughts” was a big disappointment.  It was too full of petty partisanship nonsense to be of any real value.

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