Obama’s Phony Event: America’s Economic Recovery

On July 24, 2013 President Obama stated, “But -- and here's the big but -- I’m here today to tell you that we’re not there yet. We all know that.  We're not there yet; we've got more work to do.”  This quote followed a lengthy and positive review of the economic record of his administration.  The words were designed -- according to the president -- to refocus America’s attention on and reconfirm his ongoing resolve to improve the economy even in the face of obstructionist congressional republicans.  The economy has become a staple of this president’s rhetoric and ‘immediate’ priorities many times over the past 4.5 years…so often that it is easy to forget that economic performance factors also matter and that our government’s own economic statistics contradict his aggrandizing words. 

Almost begrudgingly and only recently has the media begun to report on the Obama administration’s scandals including Benghazi, the IRS, NSA, Pigford and others in combination with his rapidly declining job approval numbers.  Perhaps as a consequence, President Obama hoped to create misdirection to derail the expansion of the narratives fixated on the scandals by using his well-honed and vaunted verbal dexterity.  In the past he has successfully employed misdirection to obfuscate measurable policy failures at the expense of reality, clarity and truth.  In addition, the President has certainly learned to use to his advantage the mainstream media’s (MSM) penchant for biased economic reporting, i.e. not presenting complete performance assessments, consistently under reporting economic negatives and ignoring the reality of a virtually nonexistent recovery.

Obama’s attempt to change the subject gains further currency given his follow-on speech of July 25 when he suggested Washington should end its focus on an “endless parade of distractions and political posturing and phony scandals” and support his agenda of more spending, further stimulus and higher taxes.  The President clearly believes he can ‘sell’ his economic prowess of the past 4.5 years (as he did immediately before the last election) to suppress the dangers of the metastasizing scandals even though the facts demonstrate very little economic progress to date during his tenure.   

Yet have Obama’s economic solutions failed?  Can his initiatives be shown to have been a source of our current economic problems – slow GDP growth, lagging job creation, constricted free markets, ballooning deficits and debt, growing and counterproductive regulation, crippling taxation and the penalization of small business. 

A survey and realistic appraisal of available economic facts/statistics surfaces the following:

    Employment/Unemployment

• The July unemployment picture essentially replicated the glacial progress made in new job generation seen since the end of the recession in 2009.  The Bureau of Labor Statistics (BLS) reported the addition of 162,000 non-farm jobs  in July which demonstrated a decline against the average gain of 189,000 per month during 2012.   The growth was, on closer inspection, at the lower end of the income spectrum and partially composed of 47,000 retail, 38,000 leisure and hospitality and 13,700 wholesaling jobs – fully 61% of the new jobs reported.  The statistics also followed the trend that 77% of this year’s new jobs are part time in structure.

• The unemployment rate declined to 7.4%; a decline assisted by more than 250,000 frustrated job seekers dropping out of the marketplace.  The rate of 7.4% ended a record drought of 54 months of unemployment rates in excess of 7.4%.  Nevertheless the much headlined 7.4% unemployment rate is quite misleading since an estimated 22 million Americans are underemployed or unemployed and not included in the unemployment calculations.  The government however does track two statistics that indicate the extent of today’s jobs paucity – the U5 & U6 rates of labor underutilization that were 8.8% and 14.0% respectively in July.

• On a more macro level the Census Bureau tracks monthly resident population growth.  The average resident growth from April 2010 to November 2012 (32 months) equaled 185,684 per month or by extension an aggregate of 9,841,252 people have been added to the population since Obama’s inauguration – as population grows a corresponding number of jobs is needed just to maintain economic equilibrium.  By contrast the BLS reports an increase in employment of 2,132,000 net jobs from January 2009 to July 2013 or a mean monthly increase of 38,764 jobs.  The difference in the two numbers is blindingly obvious…where are the jobs?

• 11,514,000 people are currently unemployed (a 7.4% rate) of a 155,798,000 civilian labor force.  But as of today the BLS is reporting an astonishing 89,957,000 able-bodied adults are sitting on the employment sidelines thus creating a labor force participation rate of only 63.4%.  Linking this fact with over 8,900,000 individuals exiting the job marketplace during Obama’s tenure and the only stunning conclusion that can be drawn is that a virtually jobless recovery is occurring.  

    GDP-Economic Growth

• The MSM’s ballyhooing of the previous quarter’s gross domestic product (GDP) growth rate of 2.4% came to a screeching halt in late June.  The Commerce Department revised the 1st quarter GDP number from 2.4% to a tepid 1.8%.  The initial 2.4% estimate marked the highest quarterly performance number since the 4^th quarter of 2011 when GDP equaled 4.1%.  GDP has exhibited both significant volatility and a downward trend since the recession ended.  In 2010 average quarterly GDP growth equaled 2.4% which declined to 2.0% in 2011 and subsequently to 1.7 % in 2012.  2012’s fourth quarter saw a meager advance of just .4%.  Given the first quarter GDP performance of 2013, average quarterly growth for 2013 will struggle to equal 2012’s appalling 1.7% level.  The trend has triggered recent economist predictions that 2013 may grow at only 1%.

    Income

• Both household median income and personal disposable income continue to decline although the rate of decline has slowed since the end of the recession.  Median household income fell 4.2% during the recession and eroded by another 4.1% in the 2 years following the recession.  The declines in income continue as seen in the BLS July jobs report that shows not only a decrease in the average work week to 34.4 hours but a reduction in average hourly earnings for all employees to $23.98.  Sadly this reinforces the long term trend of both statistics.

    Other Notable Factors

• Less than 50% of working Americans now hold a full-time job.  The BLS shows 144,285,000 were employed in July  but only 115,505,000 were employed full-time or 47%.  And since the beginning of this year fully 77% of the 953,000 jobs created were part-time…an eye opening 731,000 part-time jobs.

• Home ownership fell to its lowest level in 18 years.  Home ownership peaked in 1995 at 69.2% but has declined to 65% in the 1^st quarter of this year as reported by the Census Bureau.

• Over the previous four months the MSM has intermittently trumpeted a rebound in housing as an economic bright spot or at a minimum a precursor of a more economic ‘good news to come’.  However the Commerce Department reported an appreciable setback in June in the number of housing starts that has dragged into July, i.e. work began on 836,000 houses (annualized rate) a drop from the 928,000 reported in May.  Both prices and length of time on market of existing homes continues to vary dramatically by market.

• The Center for Immigration Studies released an analysis concluding that all job gains subsequent to 2000 can be accounted for by immigrants – both legal and illegal.  The report shows that 22.4 million immigrants held jobs at the outset of the year an increase of 5.3 million since 2000 while native born Americans with jobs declined 1.3 million.

Many more additional negative and discouraging  economic realities can be identified – ethnic unemployment rates, growing debt, deficit spending, food stamps, increasing poverty, oppressive regulations – yet more citations will not build a stronger case against the Obama ‘economic recovery’.  The recovery is a truly phony event constructed on wishful thinking and happy talk by the administration and by some in the mainstream media. 

 

Today, if the same proportion of Americans were employed as was the case a decade ago, there would be almost 9 million more people working.  And last year maybe 2 million discouraged adults would not have ‘given up’ and left the workforce.  And maybe, just maybe, a majority of Americans would be holding full-time jobs.  And maybe if the Federal Reserve was not trying to stimulate the recovery with expenditures of $85 billion per month to ‘quantitatively ease’ interest rates, capital investment would be spurred.  And maybe household incomes and personal disposable income would be growing not the specter of debilitating future inflation.  Then and only then would the American economy be actually experiencing a recovery based on the economic measures cited that dictate a real economic rebound. 

No matter what President Obama may say, the recovery is a truly phony event, constructed on wishful thinking and happy talk by the administration and by some in the mainstream media.  The “phony scandals” plaguing his administration, on the other hand, are quite real.  It is up to the American people to decide which issues deserves more attention.  

America's Economic Disconnect

The state of our economy has become a somewhat constructed fantasy created to an extent by mainstream media (MSM) narratives.  Media accounts of economic performance over the past four years have ranged from confusing to inaccurate to flagrant happy talk and spin.  Rationalization and selective reporting of factual information has created economic ‘good’ news and false ‘hopes’ where none existed or should exist.  The techniques employed have included a consistently biased meme, factual omission, factual commission, and even misdirection.  Often narratives have suggested that improvement would occur tomorrow…or next week or next year.  The effect on Americans has been a growing separation between economic reality and the media’s economic illusion. 

  

The ‘measured’ beliefs of many Americans clearly demonstrate that a disconnect does exist.  But are the cited causes the only explanation for this distortion?   Or is the statistical economic snow just too much and too boring for people to digest?  Perhaps Americans lack even a minimal understanding of the somewhat opaque concepts and statistical mechanics of economics.  Or is it because current information is not compared and contrasted to previous months and years with regularity to highlight trends and help understanding?  Or has a ‘new economic normal’ actually taken hold in the minds of most individuals?  These possibilities and others are contributing factors and can be added to the media causes degrading a realistic understanding of our troubled economy.

The public’s disconnect is seen in both polling and measurements of their confidence.   Polling indicates that the American people think the economy has improved since 2009.  In March, Pew Research discovered that 58% believed the economy is recovering or would recover soon verses 40% stating an economic resurgence wouldn’t occur for a long time.  This result compares to their December 2010 poll which surfaced 40% thinking the economy was recovering or would soon improve while 48% felt that economic improvement was in the distant future.  Similar polls by ABC, NBC, Fox News, CNN and CBS largely demonstrate similar results.  Additionally, consumer confidence declined from 68.0 in February to 59.7 in March. Although confidence has been very erratic over time, it has been gradually trending up since 2009.  Neither the polling nor the confidence trend makes sense in the face of the economy’s actual decline since 2009.  

The overall state and direction of the economy can be illustrated by a few important factors. 

• Gross domestic product (GDP) has declined since 2010 when it equaled 2.4% in average quarterly growth (growth greater than 3.0% is considered fair and above 4.0%, good).  GDP in 2011 fell to 2.0% and then sank to only to 1.7% in 2012.  The fourth quarter of 2012 saw an anemic .4% in positive GDP activity.  In sum the cumulative GDP growth for the 12 quarters following the recent recession was 7.2%.  The number translates into the slowest GDP growth rate after a recession in years when compared to 11 previous recessions…where average growth exceeded 15% for a similar 12 quarter period. 

• 4.5 million fewer Americans are working today than when the recession began and amazingly fewer are working today than in 2000.  This is more astonishing when accounting for a labor force increase of 11.4 million since that date.  And the White House prediction in 2009 that with a stimulus plan a 5.2% jobless rate would be realized by now…yet the unemployment rate is 7.6% (U3) and a more accurate measure equals 13.8% (U6) -- per the Bureau of Labor statistics (BLS) unemployment measures.  

• 89,967,000 eligible Americans are currently not in the labor force.  In March 2009, 80,944,000 able bodied workers were sitting on the side lines.  The difference between dates totals 9,770,000 or an increase of 11.0% in the number of individual workers essentially giving up hope of employment.  The number of people leaving the labor pool or simply dropping out causes the unemployment rate to be misleading.  In March 496,000 workers dropped out of the workforce and the unemployment rate (U3) declined to 7.6%...if these workers had chosen to continue searching for jobs the unemployment rate would have grown from 7.7% to 7.9%.  Further if today’s labor participation rate was at January 2009 levels the unemployment rate would equal 10.98%.  Jobs remain critical to a healthy and robust economy.  Yet meaningful job creation simply hasn’t occurred since the recession ended in early 2009.

• Food stamp usage has grown to 47.8 million participants (15% of total population today verses 7.9% from 1970 to 2000), an increase of 70% since 2008.  This support system continues to rapidly expand and preliminary 2013 numbers indicate that the program will soon have 50.0 million users.  The astounding growth is driven by not just the moribund economy and a lack of jobs but a loosening of the standards for inclusion in the program…an increase in a participant’s allowable asset and income thresholds.  Concurrently poverty has grown precipitously to almost 50.0 million, a level not seen since the mid-1960s.  In fact one in six Americans is now in poverty.

• America is in danger of losing 1.7 million of our young workers (18-29 years) to the misery of our economy since they have abandoned their efforts to secure employment.  Many of these people have college degrees and are faced with the reality of much lower wages, older workers staying in their careers longer and only the availability of part time or hourly wage opportunities.

In contrast to the above, doing a careful reading of media economic reports surfaces manipulation and bias.  For example, weekly unemployment assistance filings have not noted that claims have yet to fall below 325,000 during the president’s tenure – a statement based on a sampling of 40 stories by Fox, AP, NYT, Washington Post and Chicago Tribune.  Prior to late 2008 weekly claim counts with magnitudes above 250,000 were considered terrible at best.  Now the narratives basically report the number of new filings, the difference to the prior week’s revised number and the running four week average with virtually no perspective on the magnitude of the numbers, relevance or trends.

The use of adjectives and phrases that do not fit the facts are often found in economic articles.  An egregious but not unusual example by the Associated Press’ economics writer is worth review.  Even the story’s headline, "US economy expands at 0.4 percent rate", is misleading.  In economic terms a .4% increase in GDP is hardly expansion...in fact it is considered economic stagnation.  The opening paragraph says the .4% rate is anemic yet follows that assertion with, “[T]here is hope that growth accelerated in early 2013” without giving a reason for that hope. It’s stated later that, “Analysts think the economy is growing at a rate of around 2.5%”, again without a rationale/support or any identification of the unnamed analysts.  The narrative continues with unsupported positive speculation to its end. 

Another example of the media’s unrealistic and overly optimistic slant is illustrated in a Business & Money story.  The narrative reviews the BLS’s employment release for March 2013.  The writer states that the “Labor Department’s employment situation reports have been generally positive since November of last year” without establishing a standard to measure that judgment.  But later in the 4^th paragraph it is posited that the report is much better than a first glance suggests and in the next segment the reader is told why.  The author uses the increase in employment realized due to a revision in two prior months and adds the amount to the March total of 88,000 new jobs to reach a contrived but still mediocre sum of 146,000 jobs (incidentally the correct math is 149,000 jobs).  And the masking of reality continued… e.g. a stated reason for the massive reduction of 496,000 in the workforce may have been due to unusually high retirement levels (yet BLS employment statistics clearly demonstrate that older people are delaying their retirement).  

Although only a few examples of bias, confusing or manipulative reporting are identified, a critical read of a majority of economic stories in the press will simply emphasize the findings presented.  Given the facts, media bias and manipulation is a valid and important reason -- of many -- for the gap between the public’s perception of the economy and its actual condition.

The Fiscal Cliff Diversion

The US economy is already over the “fiscal cliff” and falling at an increasing rate.  Today’s economic questions should be focused on its rate of descent; will the rate increase or can it be arrested before the rocks below are reached.  After the election the economy has continued to implode, yet its downward plunge has been largely ignored by the mainstream media (MSM).  Apparently the MSM’s economic orthodoxy is now only centered on “fiscal cliff” narratives.  The MSM’s focus on the “cliff” gives Obama, their hero, economic “cover” since the “cliff” story is the economic story and not the terrible economic results occurring weekly and monthly.

Currently it is difficult to find economic data related to the past two months (or past three years) which is positive; whether it is meaningful growth in employment, an increase in the labor participation rate, a consistent uptick in GDP, a reduction in the workforce dropout rate, a reduction in government spending or a reduction in the deficit et. al.  

Many “fiscal cliff” narratives have incessantly talked about tax increases/decreases, spending, debt, deficits and the intransigence of the President or the Republicans (mainly Republicans) to compromise.  With compromise a deal to move the country forward on important economic issues can be attained.  Certainly future economic performance will be significantly affected by many of the outcomes related to the “cliff” negotiations.  Yet the narratives seldom mention the Obama administration’s past or current record on economic issues…a dismal report card that demonstrates no sustainable success on any level over the past four years. 

A sampling of statistical evidence that the Obama economy is already in a free-fall includes: 

Economic Statistics
Employment Statistics
	Jul	Aug	Sept	Oct	Nov
Tot. Unemployed (U3) (000)	12,794	12,544	12,088	12,258	12,029
Monthly Job Growth (000)	141	192	132	138	146
Unemployment rate-%	8.3	8.1	7.8	7.9	7.7
Discouraged workers (000)	1,037	844	802	813	979
Workforce dropouts (000)				360	540
Pop. Not in workforce (000)	88,340	88,921	88,710	88,341	88,883
Labor participation rate-%	63.7	63.5	63.6	63.8	63.6
all employment stats per BLS
National Debt	$16,351 trillion
Deficit 2009-2012	each year in excess of $1.1 trillion
GDP (2011, qtr I to 2012, qtr III)-%	1.3	4.1	2	1.3	2.7
Gov. spending as a % of GDP normally <20% of GDP…under Obama up to 25%
all other economic stats per BEA

The above statistics when added to the fact that over 23 million Americans are unemployed, underemployed or discouraged, a 14.4% rate; that 47 million Americans are utilizing food stamps; that the number of citizens below the poverty line is increasing at an increasing rate; and that the unemployment rate has declined to 7.7% because the workforce dropout rate has exceeded 900 thousand workers in the last two months can be described as both tragic and scandalous.  This is the kind of information the MSM has largely ignored or chosen to soft pedal after the election.    

Further, an explanation of government accounting practices such as baseline verses zero based budgeting has received little attention.  This silence leaves the average American believing that a cut in spending is a real reduction in outlays when it usually means only a decrease in the rate of growth in the spending.  Finally articles detailing the lack of a Federal budget and its consequences over the last four years have also disappeared from media coverage.    

Instead the MSM has touted Obama’s “fiscal cliff” position centered on $1.6 trillion in new taxes, $1.2 trillion in new spending, an added stimulus of at least $50 billion, taxing the already overtaxed evil rich, ignoring the realities of crushing debt, and dancing around nearly bankrupt entitlement programs.  In contrast the stingy Republicans want up to $3.0 trillion in guaranteed spending reductions, care taken to not gut the defense of the country, assured deficit and debt reduction, and modifications to entitlement programs to restrain their growth, cost and preserve their future…thereby insuring that the underprivileged are hurt (sarcasm intended).    

Yet maybe the most telling informational deficiency is the shortage of reporting on the economic stimulative effects of previous income tax and capital gain tax reductions.  Reductions that then resulted in growing tax revenues and appreciable increases in prosperity for the American people.  In fact MSM stories have tried to debunk the realities of the Coolidge, JFK, Reagan, Clinton and Bush 43 tax reductions that kick started past sagging economies.  The media’s reluctance to discuss tax cutting or the subsequent economic surges that followed their execution has largely removed these strategies from public debate.

The strategic use of tax policy to enhance economic activity and revenue growth began during the Coolidge administration.  President Coolidge and his Treasury Secretary, Andrew Mellon, passed three revenue acts, in 1924, 1926 and 1928 designed to spur economic growth and revenues after WWI.  Coolidge’s and Mellon’s rationales were that changes in marginal income tax rates would cause individuals (and companies) to change their behavior.  Taxpayers, they believed, would reduce taxable income by working less, reduce plans to expand businesses, restructure companies to avoid tax and even transfer some activities to the “underground economy” if taxes were high (and increasing) and exhibit the opposite behavior when taxes were reduced.  Studies of the effects of the three revenue acts demonstrated that revenue, economic activity and the share of taxes paid by the well-to-do soared.

Thirty-five years later President Kennedy presented the notion that marginal tax rate reductions would instigate increased economic activity in his 1963 State of the Union address (the act would be known as the Revenue Act of 1964).  He postulated a 20% across the board decrease in individual rates, modest declines in corporate rates and a minimum standard deduction to help a somewhat lackluster economy.  Kennedy’s objectives were to increase consumption, up personal income and increase capital investments. 

President Johnson signed the Revenue Act of 1964 into law in February of that year.  The legislation cut the top individual tax rate from 91% to 70%, lowered the corporate rate from 52% to 48%, and created a standard deduction of $300 + $100 exemption. The economic consequence of these actions was a reduction in the unemployment rate from 5.2% in 1964 to 3.8% in 1966, and material increases in both personal income and federal tax revenues in 1964 and 1965.

Less than twenty years later President Reagan inherited an economy in crisis; one characterized by very slow growth, high unemployment, very high interest rates, high inflation and low consumer confidence.  President Reagan introduced Americans to supply side economics (at times derisively named “trickle-down” economics).  Reagan’s tax concept simply stated mirrored the beliefs of Coolidge and Kennedy, i.e. people’s behavior would be affected by marginal tax policy.  Reagan also embraced many of the ideas fostered by Arthur Laffer, an economist, who developed a theory that posited the existence of an ideal marginal tax rate (using the Laffer curve) that balanced growth, revenues and economic stimulus for a point in time. Thus Reagan introduced a broad-based plan, the Economic Recovery Tax Act of 1981, aimed at concurrently promoting economic growth through tax reductions coupled with expensing property using depreciation, incentives to increase savings and incentives to help small businesses.  The tax changes were phased in over three years.   

The economic outcome was a dramatic turnaround over the next three years.  Capital gain tax revenues alone grew from $12.5 billion to $18.0 billion in 1983 and to an astonishing $80.0 billion by 1986.  In sum a moribund economic performance was transformed into one of vibrancy…featuring high growth, low unemployment, and low inflation and growing individual prosperity for a record number of Americans.  Revisionist critics (usually hardcore Keynesian economists) insist that the Reagan recovery’s historical record is misleading and point to Reagan’s deficit growth as a component of that truth…believing deficit spending created much of Reagan’s economic success.

The merit of using marginal tax rates and capital gain tax reductions as an economic analgesic have been tested more recently by both Presidents Clinton and Bush.  Clinton, after the Republican Revolution’s election victory, moved towards the political center and supported the Taxpayer Relief Act of 1997.  The act transformed the Clinton economy into a much stronger entity and produced much higher tax revenues by appreciably reducing capital gain taxes and by removing some of the negative effects of his earlier Omnibus Budget Reconciliation Act of 1993. 

Finally the much maligned (read evil) Bush tax cuts bear mention.  In 2001 G.W. Bush using the pretested logic and the successful experience of the presidents noted above passed the Economic Growth and Tax Relief Reconciliation Act of 2001.  This legislation’s purpose was to mitigate the recession inherited from Clinton and promote economic prosperity not seen since President Reagan.  Just as positive economic signs began to appear the World Trade Center disaster occurred.  Nevertheless once the tax reduction effects took hold over 50 consecutive months of strong economic activity were realized.  That activity abruptly ended due to the mortgage crisis and the following financial collapse.  

Given the above realities, a fair hearing on an alternative approach for an economic resurgence using marginal tax rate reductions deserves discussion.  But sadly the MSM will continue to emphasize only statistics that highlight the positives of the torpid Obama economy (as will Obama) and continue to anesthetize the public to the magnitude of this administration’s failed economic policies rather than report on or discuss a time tested tax strategy.  The truth is that the economy is already over the “fiscal cliff”.  Obama’s incompetence did the pushing and his “fiscal cliff” strategy will accelerate the economy to destruction on the fast approaching rocks below.