Where are the jobs?

The United States created a paltry 18,000 jobs in June and the unemployment rate increased to 9.2%. The number of long-term unemployed (those jobless for 27 weeks and over) sits at 6.3 million and accounts for 44.4% of the unemployed. Let that marinate for a while: almost half of all unemployed persons have been without a job for more than 6 months. Also, do you recall a few months ago how this Administration and its propagandists in the media trumpeted an alleged reduction trend in the jobless rate? The decrease in the jobless numbers apparently was not as reported. From the BLS website: "The change in total nonfarm payroll employment for April was revised from +232,000 to +217,000, and the change for May was revised from +54,000 to +25,000." The 15,000 discrepancy might be excused due to miscounting or slightly-off estimates, but being off by 29,000 (approximately 54% difference)? It appears as if someone is fudging on the figures.

So, in spite of the New Dealesque stimulus spending and over a trillion dollars in government bailouts, unemployment has not fallen lower than 8.8% since March 2009 - the date the original stimuls bill became law. The average unemployment rate under the Obama Administration has been 9.4% (I did not include January 2009 since the President did not take office until January 21, 2009). Unemployment has averaged 9.5% since the passage of the stimulus bill. For those who argue that we need to give the stimulus bill time to work, unemployment has averaged 9.5% for a period beginning 6 months after the stimulus bill was passed. It has averaged 9.4% for a period beginning 12 months after the bill passed.

The multi-trillion dollar question is: WHY?

Many bloggers and pundits blame corporate job outsourcing for the lack of jobs. The same group often bundles the ephemeral concept of hoarding with outsourcing in its condemnation of evil corporations.

If corporations are "hoarding," which I believe detractors define as "not spending greater money on employee compensation and not hiring new workers," then what is the reason for their failure to spend their cash reserves? One reason is that the US currently exists under a regime that plays favorites, only helps its friends (i.e. its pet special interest groups) and punishes its enemies (i.e. everyone not willing to play ball). If you do not have a multi-million dollar lobbying budget or cannot order hundreds of thousands of workers contribute to and vote for this President and his cronies in Congress, then you are insignificant. If, like the US Chamber of Commerce, Boeing, or Fox News, you attempt to challenge this President's agenda, then you will feel his wrath via a facilitating media or punitive legislation. How can you operate a business in that type of environment? How can you plan for the future, including determining whether you can hire more employees.

Moreover, the first 18 months of the Obama Administration has resulted in the passage of the most sweeping redistributionist legislation since the New Deal. Regulation continue to accumulate. Businesses are unable to determine their future finances because they have no way of determining whether or not some new law will pass in the near future that will result in higher compliance costs or a reduction in production (and revenue). This means that it would not be advisable for many businesses to take the risk of hiring new employees and spend the time and resources to train them if they only have to let them go in a few months because of a future increase in costs. In addition, those same businesses are equally reluctant to invest in capital goods because of potentially higher costs. That means there is less spending on big ticket items like buildings, equipment, and vehicles because the businesses do not know if they will be able to afford them in the future. Businesses' inability to predict their costs translates into an inability to obtain credit. After all, commercial lenders will not loan to businesses because they have no way of assessing their risk since the businesses themselves do not know what their costs will be. Along those same lines, in an environment in which lending money to businesses is much more risky (and other investments options like stocks, due to their volatility, or real estate, due to the collapse of prices, are rendered highly unattractive), they will invest in government securities since there is a guaranteed return. Said differently, banks will invest in treasury bonds because of their guaranteed return over running the risk of lending to a business that may default or file bankruptcy.

Because businesses are reluctant or, due to the inability to obtain credit, incapable of purchasing capital goods, it creates a snowball effect of ever-increasing unemployment. Less capital goods purchased means fewer revenue for manufacturers which means fewer manufacturing jobs. But the negative tidal wave does not end there. Fewer capital goods being made means that the producers of raw materials, transportation companies, wholesalers, salespeople, repairmen, etc. (together with all of the countless industries that support the various industries) all experience a drop in revenue. Less revenue means less money for capital goods purchases and hiring.

Lastly, in such an environment, one in which corporations are constantly demonized, investors who would otherwise run the risk of investing their money in shares, funds that corporations would have been able to use to purchase capital goods and hire employees, instead invest in other vehicles such as treasury bonds guaranteed by the full faith and credit of the United States government, or they save (i.e. investing in money market accounts, CDs, etc. - lower return but safer investments). Without investment, the economy suffers deleterious effects in other ways. There is less capital available to support innovation. In fact, the only investment in innovation is typically government subsidies that go to political favorites resulting in distortions in the economy, malinvestment (often creating bubbles), and inefficiencies (i.e. allocations of resources to areas that do not provide the maximum benefit to consumers or for the production of items that consumers neither want nor need).