Posted on 03/15/2004 11:24:21 AM PST by Willie Green
For education and discussion only. Not for commercial use.
Speaking to the National Association of State Treasurers on March 8, U.S. Treasury Secretary John Snow admitted that the lack of job growth in the U.S. economy was a “mystery” to him. Only six months ago, Snow told The Times of London. “Everything we know about economics indicates that the sort of economic growth expected for next year, 3.8 to 4 percent, will translate into 2 million new jobs from the third quarter of this year to the third quarter of next year.”
The Bush Administration´s team of mainly neoclassical economists has constantly overestimated job creation as the economy has clawed its way out of the 2000-2001 recession. In 2002, they estimated there would be 138.3 million nonfarm payroll jobs in the economy by February 2004; they revised this downward in 2003 to 135.2 million jobs, but this was still well above the 130.2 million nonfarm jobs that actually existed at the end of February.
Last month, the Council of Economic Advisers (CEA) predicted 1.6 million new jobs would be created in 2004, but an oft-burned White House immediately backed away from the prediction. The job report for February showed only a net gain of 21,000 jobs – about one-tenth what Secretary Snow was predicting would be the monthly average last fall, and these were all in local government service, not the private sector. Manufacturing employment continued to drop. There were 8.2 million persons unemployed and 4.4 million working only part-time because they could not find full-time work. Another 1.7 million persons were sporadically looking for work, but not “officially” unemployed even though they were without jobs.
Huge amounts of economic stimulus have been pumped into the economy. The federal funds interest rate is down to 1 percent, and the money supply has been growing quite briskly. Tax cuts have reduced federal tax revenues appreciably, from $2,025 billion in 2000 to only $1,783 billion in 2003, while spending has jumped from $1,788 billion to $2,157 billion in the same period, converting a budget surplus into a deficit. In 2004, the CEA estimates that tax revenues will increase by only $16 billion while spending will increase by another $143 billion to generate a $520 billion budget deficit.
It was President Richard Nixon who said “we are all Keynesians now,” referring to the late British economist. The Keynesian policy prescription for recovery from a recession is to run large budget deficits to create added demand in the economy, which firms will meet by expanding production and employment. Liberal Keynesians prefer to create these deficits by increasing government spending, while conservative Keynesians prefer to cut taxes. The Bush Administration has done both, with the Federal Reserve seeking to accommodate the increased spending with an expansionary monetary policy.
The Keynesian frenzy of three tax cuts in three years, as President George W. Bush desperately sought to avoid a stalled recovery, went far beyond what could be justified by “Supply Side” theory. The Supply Siders argue that when tax rates are too high, economic activity slows because business finds expansion to be unrewarding given the risks. The parlor trick is to cut taxes and stimulate the economy. The resulting growth then generates higher tax revenues which reduce the budget deficit. This was the case in the 1980s when President Ronald Reagan adopted this policy. When Reagan took office in 1981, federal taxes took 19.6 percent of Gross Domestic Product (GDP), the second highest tax burden the country had ever experienced. Reagan´s tax cuts reduced the burden to an average of 17.8 percent from 1983 until 1996 when President Bill Clinton pushed through a tax increase that moved federal taxes to 20.0 percent of GDP during 1998-2000. Despite Reagan´s lightening of the tax burden, tax revenue increased every year after the 1982-83 recession, and by the time he left office in 1989, tax receipts were 65 percent higher than they had been in 1983 – and 17.7 million nonfarm jobs had been created.
The Bush tax cuts have reduced Federal revenues to 16.5 percent of GDP in 2003, and revenues are predicted to fall to 15.7 percent in 2004. Secretary Snow argues that past tax cuts should become permanent, and a fourth tax cut should be passed this year to stimulate growth and generate higher future revenues to balance the budget. But the figures don´t add up. Even Brian Riedl, a budget expert at the conservative Heritage Foundation, has concluded, “While recent tax cuts will likely aid economic growth and bring in new tax revenues, it is unrealistic to expect tax revenues to grow at the 9 percent annual rate necessary to balance the budget by 2014 under current spending trends.” The revenue performance during the six years following the Reagan tax cuts were, however, almost this good, averaging 8.5 percent. In contrast, tax receipts now are not expected to even regain their 2000 level until 2005.
The problem is that the economy has changed radically in twenty years, in ways that make it more difficult to use fiscal policy to stimulate growth. But the Bush administration does not seem to understand the changes, thus its officials and economists are continually surprised that their policies are not working as well now as in the past.
The biggest change is that the United States ran a $496 billion trade deficit in 2003, and has suffered the loss of 2.7 million manufacturing jobs do mainly to imports. In an “open” economy targeted by foreign-based producers (including nominally American firms that have moved their factories overseas), too much of the money put into consumers´ pockets by tax cuts and low-interest loans gets spent on imports. This counterproductive behavior creates jobs for foreign workers, profits for foreign firms, and tax revenues for foreign governments rather than benefits for the American economy. The added aggregate demand generated by a $375 billion budget deficit last year was not enough to offset the drag on the economy from the trade deficit.
This negative impact is even more direct when government itself sends work overseas by outsourcing or foreign procurement. Money taken out of the domestic private sector via taxes should be returned to the domestic private sector when the government spends the money, otherwise the government is contributing to the current economic imbalance.
Last week, an amendment by Sen. Christopher Dodd (D-CT) to S. 1637, the Jumpstart Our Business Strength (JOBS) Act, was passed by the hefty bipartisan margin of 70-26. The amendment would prohibit taxpayer dollars from being used to outsource or take offshore work formerly done in the United States. Among its supporters where 25 Republican Senators including Majority Leader Bill Frist. There is a growing realization that if the United States is to maintain its economic might and enviable standard of living, policy must act to prevent government, business, and household behavior from dissipating the nation's real and financial resources overseas. The "twin deficits" must both be tackled if either one is to be tamed.
William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
A Snow Job. 3/4 are "NEW" jobs Americans won't do and must be filled by Illegaliens.
Can't we just keep our OLD JOBS?
MOST people make less than 5 years ago? What's your source for this?
Baloney. Prove it.
The heart, of course. Why argue with emotion? There are crypto-economists on this forum that believe in the falling real-wage theory much like the enviro's believe in global-warming. It's simply an article-of-faith.
I don't think most Americans are going to argue with him on this point. Seemingly incompetent but, in reality, purposefully deceitful is, I believe, in the minds of many.
The Bush Administration´s team of mainly neoclassical economists has constantly overestimated job creation as the economy has clawed its way out of the 2000-2001 recession.
More simple incompetence or something else?
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