Economy creates only 54,000 jobs in May
By Peter Morici
web posted June 6, 2011
This past Friday the Labor Department reported the economy added only 54,000 jobs in May, indicating the economic recovery is faltering. Washington has not addressed structural problems that caused the Great Recession—unnecessary dependence on high priced imported oil, the huge trade deficit, burdensome health care costs, and a tax structure that disadvantages U.S. based businesses—even though reasonable solutions are at hand.
The unemployment rate rose to 9.1 percent from 9.0 percent in April. This figure belies the millions of adults who have quit looking for work altogether and part time workers who cannot find full time employment. Adding in those workers, the unemployment rate is closer to 16 percent. Finally, considering the millions of recent college graduates that have taken jobs requiring no more than a high school diploma to effectively perform, the underlying rate of unemployment is closer to 20 percent.
After adding 220,000 per month in February through April, May’s poor showing indicates the economic is faltering. Falling consumer confidence, car sales and durable goods orders, and New York banks are again reliant on commodity speculation and other trading rather than lending, and the dreaded double dip may be at the nation’s doorstep.
Without a dramatic shift in Administration approaches to energy policy, the trade deficit, health care, and taxation, the economy appears headed down, and this time for good.
The economy must add 13.2 million private sector jobs over the next three years—365,000 each month—to bring unemployment down to 6 percent. Factoring in retrenchment by state and local governments that will require nearly 390,000 private sector each month, but in May private business only added 83,000 employees
In the first quarter, the economy expanded at a 1.8 percent annual rate, and by all indications second quarter growth will be subpar and not enough to keep unemployment from rising.
Each year, the working age population increases 1 percent a year and productivity advances about 2 percent; hence growth in the range of 3 percent is necessary to keep the unemployment rate steady. Coming out of a deep recession, growth in the range of 4 to 5 percent is needed and possible to get unemployment down to 6 percent over the next several years, but policies put in place by the Obama Administration and Congress are blocking that growth.
Continued dependence on high priced foreign oil, the growing trade deficit with China, and health care and tax policies that penalize the location of businesses in the United States are responsible for slowing growing demand for goods and services made in America and much weaker jobs creation than was accomplished during past recoveries.
Simply dollars that go abroad to pay for expensive imported oil or subsidized Chinese exports that do not return to buy U.S. exports lower the demand for U.S. made goods and services and the services of American workers. Restrictions on developing U.S. oil and gas and China’s explicit policy of subsidizing exports but suppressing the value of its currency are the root causes of U.S. unemployment. These conditions are further exacerbated by health care costs that are double those borne by European competitors and a reliance on personal and corporate income taxes that under by World Trade Organization rules may not be rebated—principal U.S. competitors rely more on value added taxes, which may be rebated.
Millions of jobs could be created by: drilling for more domestic oil and gas now, which would keep money here that American drivers send to the Middle East; taxing dollar-yuan conversion to offset China’s currency market intervention, undervalued currency and 35 percent subsidy on its exports; genuine health care reform that lowers drug, insurance and administration costs, and tort burdens, rather than subsidizing a system that costs 50 percent more than private systems in Germany and elsewhere; and replacing the corporate income tax and elements of the personal income and social security tax with a value-added tax.
America has the tools at hand but Treasury Secretary Geithner fails to grasp the gravity of the situation, and President Obama is not ideologically disposed and lacks the stomach to use them. Sadly, we are not hearing much about those solutions from the cacophony of Republicans seeking the presidency either—tax cuts and deregulation, vouchers and other tea-party hobby horses are palliatives not problem solvers.
Policymakers must address the world as they find it, not as professors and presidents pontificate it should be.
America is not suffering from a poverty of ideas but shortage of leaders with the vision and courage to see what is possible and act.
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.
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