Saturday, July 11, 2009
Why isn’t America hiring?
On July 1st we saw the release of two piece of important employment data: the Challenger, Gray & Christmas monthly survey of lay-offs and the Monster Employment Index which measures on-line want ads. The latter is an improvement over traditional want ads which were showing declines due to loss of market share to the web rather than actual job opening declines. Just because companies were not recruiting by printing their ads on dead trees doesn't mean they were not hiring. But even in the world of friction-free job recruiting, they are indeed not hiring. The index showed only one up month out of the last eight, and even now with the economic picture improving, job recruiting is still dropping. Why?
It's not as though these jobs are being decimated by lay-offs. Yes, there was a lay off peak last Fall and another bigger one in January, but since then lay-offs have dropped every month so far. In January there were roughly a quarter million jobs eliminated according to this survey. Last month there were less than seventy five thousand. You have to go back to Spring of 2008 to find levels that low.
So we're not firing many people, but we're not hiring either. Why? This is especially confusing given the political mood in Washington during the past two years which has been far more focused on job creation (or savings) than on general economic growth. The stimuli plans were supposed to be job plans. The auto/bank bailouts cum nationalizations were supposed to be about saving jobs, not 'Wall Street'. So given two record breaking stimuli within two years, why isn't America hiring?
America isn't hiring precisely because of government policy. Small business owners, who are usually the first into and the first out of the job pool, are standing by the fence and watching. They are paralyzed by regulatory uncertainty. If they hire someone who ends up doing poorly, will they be able to fire that person? Will they have to pay their health care bills after they've been terminated? If so, for how long? Who will pay for all these stimulus checks? If it will turn out to be small business, why would they hire instead of keeping costs low to prepare for the big tax bill? Where will the market move? Are you in the right business or are your clients in a politically disfavored industry? Are your clients in health care (being nationalized), autos (already nationalized), banking (somewhat nationalized) or any energy production process which uses carbon (pulverized)? Until you know, you don't grow, and until you grow your market, you don't grow your payroll.
Jobs aren't languishing despite the government's best efforts. They're languishing because of them.
The stimulus that didn't stimulate: The Excuses Begin
Democrats are in a bit of a jam on the stimulus, as many reporters have noticed: “Democrats are all over the map on the stimulus and the possibility of a sequel, and it’s not hard to see why: When it comes to a second stimulus, they may be damned if they do and damned if they don’t.” But there is nothing they would have done differently, right? That phrase may prove to be this administration’s “Mission Accomplished” banner.
The current excuse — that somehow the administration didn’t understand how severe the crisis was — isn’t going over so well. In fact, it’s so easily disproved by rolling back the tapes of all the gloom-and-doom talk that permeated the president’s remarks in the early days of his term, that his critics are having a field day. House Minority Leader John Boehner, for example, isn’t buying any excuses:
I found it … interesting over the last couple of days to hear Vice President Biden and the president mention the fact that they didn’t realize how difficult an economic circumstance we were in. . . Now this is the greatest fabrication I have seen since I’ve been in Congress. I’ve sat in meetings in the White House with the vice president and the president. There’s not one person that sat in those rooms that didn’t understand how serious our economic crisis was.
Well he does have a point; the president kept calling it the worst economic crisis since the Great Depression.
The simple truth is the stimulus was ill-conceived and poorly executed. Sooner or later, the president and his advisers will need to acknowledge that deferring to Nancy Pelosi to devise a grab-bag of goodies for liberal interest groups wasn’t smart politics or smart policy.
Federal Government Was Culprit in Housing and Economic Crisis, Says Congressional Report
Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday. The claims in the report have long been advanced by conservatives, who argue that the Community Reinvestment Act and other federal programs fed the housing bubble that burst in 2007 and led to the economic downfall in 2008.
But the report explains in detail how Fannie and Freddie -- government sponsored enterprises (GSE) that were not subject to the same oversight as other publicly traded firms -- “privatized their profits but socialized their risks.” “In the short run, this government intervention was successful in its stated goal – raising the national homeownership rate,” says the report, the result of an investigation launched last fall by Republican members of the House Oversight and Government Reform Committee. “However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy,” says the report. “While government intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.”
The report talks about the Clinton administration’s National Homeownership Strategy, citing President Clinton’s directive to “lift America’s homeownership rate to an all-time high by the end of the century.” The Clinton strategy further said that Freddie and Fannie should reduce down-payment requirements and, according to the report, “called for increased use of ‘flexible underwriting criteria,’ which it said could be achieved in concert with ‘liberalized affordable housing underwriting criteria.’”
“That is the perfect smoking gun that tells how Barney Frank [D-Mass.], the Clinton administration and others would do it in those days,” Rep. Darrell Issa (R-Calif.), the ranking member on the House Oversight and Government Affairs Committee, said Tuesday in a speech at the Heritage Foundation. “The seeds of the meltdown began with the well-intentioned goal that everyone have a home even if they can’t afford it,” he said. “It led to one of the biggest ponzi schemes ever.” .....
The report also talks about how the two GSEs became a powerful lobby. Fannie Mae CEO Jim Johnson opened up “partnership offices” in congressional districts, hired relatives of members of Congress, and GSE employees contributed $15 million to federal campaigns from 1998 to 2008. Throughout that time, all attempted reforms in Congress were blocked....
The report cites Frank’s accusations that to blame Fannie and Freddie is to blame only the lender and not the borrower. “This misses the mark entirely. In fact, responsibility for the erosion of mortgage lending standards, which began with government affordable housing policy, rests squarely on the policy makers who advocated these ill-conceived policies in the first place,” the report says. “Borrowers quite naturally responded to the incentives they were given, irrespective of their socioeconomic status, and risky lending spread to the wider mortgage market.”
The case for doing nothing: “The first thing to note about the financial crisis is that the federal government never had any business intervening in the personal decision of whether you want to own a home. There is no rational economic argument, or any argument I know of, that says the market of buying and selling homes is imperfect in some way, requiring government action. Construction firms have plenty of incentive to build homes and sell them. People who have the wherewithal have plenty of incentive to buy homes if they so choose. For the government to intrude into homeownership was an off-budget, nontransparent, backdoor attempt at redistributing income. And when the policy became a way of transferring income to people who couldn’t afford those homes, it was doomed to failure.”
75 years of housing fascism : “On June 28, 1934, Franklin Delano Roosevelt signed into law the National Housing Act (NHA) of 1934. Hugh Potter, president of the National Association of Real Estate Boards (NAREB) called it ‘the most fundamental legislation … ever enacted affecting real estate and home ownership.’ While federal intervention in housing had begun in 1932 under the supposedly laissez-faire Hoover, Potter’s assessment was correct in the sense that the act broke new ground in terms of the range of public-private collaboration — and the unintended destructive consequences of such.”
Washington needs to help businesses for a change: “Are the stock market and economy taking turns for the worse? Do we really need a new stimulus plan from Washington? Let’s begin by rolling back the clock to last Thursday’s June jobs report. It was not a good report. Stocks have fallen over 4 percent since then. And here’s one reason why: plunging wages. Private hours worked continue to free-fall. Hourly wages have flattened. It was a nasty report. Job losses are still substantial. It’s a powerful and nasty combination. While I am an optimist by nature, this does worry me. It suggests a later, and weaker, economic recovery. So here’s a novel thought for all the geniuses down in Washington. Help businesses for a change.”
Canada: US soldier denied asylum : “The first woman soldier to flee the U.S. military for Canada to avoid the Iraq war on Wednesday appealed the findings of a report that led to her deportation order. Lawyers for Kimberly Rivera argued a Ministry of Citizenship and Immigration report did not adequately measure the potential risks the war resister could face if she were returned to the U.S. before a Canadian court ordered her to be deported earlier this year. Rivera’s lawyer, Alyssa Manning, argued in Canada’s federal court that her client would more likely face a court martial and jail time instead of an administrative discharge because of her political opposition to the war.”
Why sacrifice? : “I just don’t know what exactly President Obama means when he says ‘We must all expect to sacrifice during these times’ or the equivalent. Never mind why we must do this — does he want to enact laws that force us all to sacrifice? Is that his job? But, as I said, never mind such tiny details. What exactly does the president consider a sacrifice? Does reducing our standard of living amount to a sacrifice?”
British Labour isn’t working : "The latest figures released by the Department of Work and Pensions show a telling but frightening story as to the societal damage New Labour have inflicted upon Britain. According to the data, over a million people have been on constant state benefits since 1997 whilst another 1.9 million have been on benefits for over seven years. These results are not as surprising once New Labour’s welfare policies have been inspected. Although they claim to support the most vulnerable in society they seem to have penalised them at every opportunity. State benefits are set at a level where it is more beneficial for an individual to remain on them rather than seek employment.”
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Posted by JR at 12:36 AM