Saturday, January 11, 2014

The Real Problem -- No Jobs for the Unskilled

The jobs report on Friday trumpeted 74,000 new jobs for the American economy in December of 2013.  250,000 would be a mediocre result; 300,000 would be a good result; 1,100,000 in September, 1982 (in the Reagan recovery) was a great result; 74,000 is embarrassingly pitiful.  But, this is as good as it gets in the new Obama world.

More than 300,000 more Americans gave up looking for work, so the unemployment rate dipped to 6.7 percent.  If everyone gives up looking for work, the unemployment rate could go to zero.  That seems to be the predictable direction of Obama policy.

Meanwhile the move to raise the minimum wage -- which effectively outlaws job creation for the unskilled -- marches on.  Recurrent (and permanent) extension of unemployment benefits are at the forefront of the Obama agenda in a frank admission that job creation is simply not part of the Obama agenda.

Businesses are making rational decisions.  They are not hiring.  They are not investing in their businesses.  Banks are making rational decisions.  They are not lending.  Potential workers are making rational decisions.  They are leaving the work force in droves and taking advantage of the numerous welfare schemes in place that provide massive financial support for the unemployed. So the system is working and responding properly to the incentives that are in place.  That's a good thing.

What is isn't so good is that the majority of Americans will no longer be able to pursue the American dream thanks to big government.  The good news is that if government ever gets out of the way, there is a strong possibility that the American economy could regain its historic vigor.  But, don't count on any real economic progress in the US until the incentives at the micro level are changed to support job creation, business expansion, and the development of a work force with improved skill levels.

The simple minded views of the Krugmans, Bernankes, and Yellens, that higher budget deficits are the ticket to prosperity are ridiculous and a public testament to the bankruptcy of modern macroeconomics.  The incentives in place discourage hiring, discourage business expansion and discourage workers from adding to their skills or seeking new employment.  No amount of fiscal deficits will change that picture.

No comments: