Analysis of Obama's jobs summit
Thursday, December 3, 2009; 1:00 PM
Washington Post staff writer and Economy Watch blogger Frank Ahrens discussed Obama's jobs summit, the differing schools of thought on how to create jobs and the political ramifications of the continued high unemployment rate.
A transcript follows.
Frank Ahrens: Greetings, all, and thanks for joining me in this live discussion on unemployment.
You know the White House is hosting a big jobs summit today, one day before the November unemployment numbers come out.
You know how bad the unemployment situation is -- worst since the early '80s.
You don't need me bloviating a bunch here at the top, so I'll get right to your questions.
Union, N.J: The unemployment numbers reported monthly do not reflect workers who have either exhausted their u.e benefits or earned below the minimal amount to qualify. Given these facts do you believe the true jobless rate in the u.s could be over 20%? Thank you, Joe
Frank Ahrens: Hi, Joe:
Are you a plant? I LOVE talking about the real unemployment rates. In fact, I do it each month when the new numbers come out, because the official number that is so widely used is a lowball number.
You are right -- a truer measure of unemployment in the U.S. puts the number at a record modern high of 17.5 percent. For perspective, look at it this way: U.S. unemployment hit its historic high at the nadir of the Great Depression in 1933. That number? 25 percent.
Here's a piece I wrote earlier this month explaining the truer unemployment rate:
The deal is this: The 10.2 percent number that's the official U.S. unemployment rate DOES NOT include people who have grown so discouraged they have given up looking for work and those who want to work full-time but are being forced by the lousy economy to work part-time.
If you strip out the part-time workers, the unemployment rate is above 11 percent.
All these numbers come from the Labor Department's Bureau of Labor Statistics and they are a reflection of how they chose to count and chop up the data.
The 10.2 percent figure comes from a combination of a monthly survey of 60,000 rotating households plus information supplied by employers. But it defines unemployment very narrowly, asking respondents questions such as, "Did you seek work in the past X weeks?" and so on. This is not to say this is a statistically invalid method; it's not. But it does under-represent the true American unemployment picture.
San Francisco: "What can the White House Do?"
Uhhh, level with the American people, tell them to buckle down and make sacrifices, and then not add to the deficit by giving away billions to their public union pals. How's that?
Frank Ahrens: The Austerity Plan representative checks in.
Deficit hawks are with you, and it's not limited to unions.
This $787 billion stimulus plan AND the autos bailout AND the AIG bailout AND, AND, AND... have added billions not only to the yearly deficit but the national debt, which is the sum of all the deficits since the republic began.
These deficits are funded by selling U.S. debt to foreign countries -- chiefly, China and Japan -- and that's a problem for two reasons: A) Some day, they may stop buying our debt, especially if the value of our dollar keeps going down. And B) The more U.S. debt that foreign nations hold, the more leverage they have over us.
Don't mistake this: America's growing debt is not only a national security problem, it eats into new job creation.
Bethesda, Md.: If a consensus is met about how to alleviate unemployment, how long will it take for us to see new jobs being created?
Frank Ahrens: Boy, THAT is the question. Best I can do is offer you a couple of historical stats.
Most economists say that the new weekly jobless claims number needs to get down into the low- to mid-400,000s in order for job creation to start.
This morning, we saw last week's new jobless claims number come in unexpectedly low -- at 457,000. If that doesn't prove to be a blip, that's a good sign.
Second: We know that after the end of each previous recession, unemployment continued to rise for months -- and sometimes quarters -- after the recession ended. Why? Because businesses wait to see earnings for a couple of quarters to see if things are really starting to turn around before they start adding new bodies or bringing old bodies back.
This recession technically ended in the third quarter, so we'll see how long it takes for jobs to start coming back. Just remember this: A) This recession is the worst since the Great Depression. B) There's a fuzzing factor at work here -- some jobs have been created by government stimulus, which is not organic money. In a way, it's fake money, and we don't know if the jobs will go away when the stimulus runs out.
Union, N.J.: No Plant Mr. Ahrens lol..Just an Unemployed Construction worker trying to bring some reality to the situation.
Thanks for your comprehensive answer and pursuit of open and candid discussion. Perhaps we can figure this out with more open forum like this! Thank you.
Frank Ahrens: Good luck, Joe from Union, N.J.!
Memphis, Tenn.: Over the last decade, many millions of jobs have been outsourced to other countries with cheap labor. While this may fatten the corporations wallets, the fact remains that the US worker has lost his/her job. It never came back.
Now, we have many millions of new graduates and older workers in the job-pool. This precious, potentially productive generation is willing to work at lower wages, and in fact, some bright kids are interning for free.
The US businesses are giving away our money abroad. And they want us to acquire value-added Knowledge. How can an unemployed bread winner go to college? Where does the free intern find tuition money on top of the thousands of dollars he already owes?
The jobs problem is caused by the greed of Wall-street and Silicon-street. For our country's sake, please bring back our jobs home- from China, India, Brazil, Eastern Europe, etc.
Frank Ahrens: This touches on a tough issue: jobs moving overseas.
On this issue, I sometimes think about what Tom "The World Is Flat" Friedman said when he was accused of being pro-globalization: I am neither for or against globalization. I simply recognize it is.
The era of chasing dirt-cheap labor overseas is over. But in truth, U.S. employers still pay workers doing comparable jobs to overseas works two to three times what the overseas workers make.
How do you change that?
Well, the painful way would be to cause massive deflation, which would bring down wages. It also would plunge us into a second Great Depression, so that's probably off the table.
I sympathize to an extent: Recent immigrants to this country (legal and illegal) are doing jobs at the low end that Americans no longer want to do.
Smart foreigners are doing jobs at the high end for a cheaper wage than Americans are doing here.
However, one thing we do know is that protectionism does not work. Just Google Smoot-Hawley Tariff to see what I mean. No country takes a protectionist measure lying down; they throw up their own, then you've got an arms race and people in both countries suffer.
Atlanta: I run a small business and we are not hiring due to several reasons, but mainly due to the uncertainty in the economy and where the economy will be in the next several years. We have actually downsized to a core group of employees and may downsize further if needed. We won't hire more people until it is in our best interest to do so.
What could be done to create more hiring opportunities would be income tax cuts (most small businesses report their income on the owner's tax return), a freeze on withholding taxes, a health care plan that will not increase taxes on workers and businesses and a Congress that is more pro-business and less pro-government with regard to new job creation.
It is the small businesses in this country that hire most of the people and taxes are killing us. Take some of the remaining stimulus funds and apply those to permanent tax cuts, get the budget balanced and show the business community that you care about doing something real to stimulate the economy, not sending out pork.
And don't tell me about cutting the capital gains rate for business like Mr. Obama discussed last year. We are smarter than that. Most businesses do not pay capital gains taxes. Stop trying to fool everyone and come up with something real, i.e. get more money in the people's pockets, not taking money out of the people's pockets.
Frank Ahrens: Thanks for this, Atlanta. This sums up nicely the free-market way to create jobs: make conditions easier, not harder, on employers.
New York: I can't help thinking this jobs summit is just a cynical ploy to make us think the president can create jobs. What possibly could come of it? Thanks.
Frank Ahrens: A nice photo opp, with the president standing side-by-side with America's business leaders. There's that.
Aside from that, here's what it could bring: Obama is a Democrat, but he's sympathetic to the private sector in a way that his hard-line party colleagues on the Hill are not. He's swayable on free-market measures to help goose employment, I think. Today, big CEOs have the president's ear for several hours, and they can give real rubber-meets-the-road examples of what tax cuts and other business stimuli can provide.
Michigander: Just read the Post's article, "Stimulus is boon for D.C. area contractors." At the end, one of the beneficiaries of the stimulus is quoted as saying "I'm not sure I've ever heard of a government support contractor in Michigan."
With the Michigan economy in the dumps, and in the age of advancing communications technology, why not? We'd love to have the jobs here in MI!
washingtonpost.com: Stimulus is boon for D.C. area contractors (Post, Dec. 3)
Frank Ahrens: Tell me about it.
I was just looking at the metro-area unemployment numbers out yesterday, and it's getting worse in Michigan. Pontiac is in state receivership and just sold the Silverdome for a half-million bucks -- no kidding! -- to a guy who saw an ad in the paper for it.
Detroit unemployment is 16.7 percent.
I have seen, by the way, the very good "come do business in Michigan" ads the state is running on CNBC, featuring actor Jeff Daniels.
I don't know what Michigan's future is, to be honest. It's got one healthy auto company -- Ford -- and two others limping. Looked like GM was in turnaround but then the board pushes out the CEO in a surprise coup. And Chrysler is still losing vehicle sales.
Champaign, Ill.: "Do something about the increasing unemployment rate" already seems unavoidable, but how exactly?
Frank Ahrens: This is a good way to lay out the major schools of job creation.
On the one side, you've got those who believe that government is the answer, at least as a short-term, turbo-charged boost (or, in FDR's case, a much longer-term one). President Obama has embraced this school with this $787 billion stimulus plan. The idea is to jump-start the economy -- like trying to shock a heart attack victim back to life -- by pouring taxpayer money into the system and saving, or creating, new jobs. If those people have jobs, they're spending money and 70 percent of U.S. GDP is based on consumer spending.
The drawback here is that there is not enough government money to sustain an economy the size of the U.S.'s. It's like trying to run a big furnace with one coal. And, it ends up being a zero-sum game -- nothing is created, just recycled.
Some have advocated creating a new FDR-like WPA, or Works Progress Administration, creating millions of new make-work jobs. If your goal is only lowering unemployment, that'll work. But if your goal is restoring a vibrant, growing economy, it won't for the reasons listed above.
On the other side are the free-marketers, who say that job growth comes from private industry. And the best thing government can do is make it easier on them (lower taxes, etc.) and let them hire.
Brunswick, Maine: Why are only Democrats given place at the jobs summit? Attendees include Unions, Liberal Think Tanks, SEIU, Teacher's Union, EPA, Democrats?
Where is the Chamber of Commerce, Independent Businesses, Conservative Think Tanks?
Why are the only people making decisions liberal? Where is the balance of government? How can we as citizens stop this imbalance in governmental decision-making? I and others have become extremely alarmed by this dictatorship from our government body. This will not be allowed to continue, and they ask why the conservatives are up in arms? How naive and intellectually stupid of this administration to wonder at the unrest and justified anger and mistrust from the American public. Obama is creating an environment of divisiveness, hardly the mark of a great president. Obama has it all going for him, everyone loved him and desperately wanted him, the first black president, to succeed. However, he has taken the most divisive path of any president in history, so what does he expect in return from the people. This is horribly sad for all concerned.
Frank Ahrens: This is a good point and one which was addressed in our story today on the summit. The White House's response: We've already talked to these other groups and will continue to do so. We want FRESH ideas.
But the message to the excluded groups -- especially the U.S. Chamber of Commerce, which has clashed with the White House - is probably clear: You're about as welcome at this thing as gate-crashers at an Indian state dinner.
New York: I've no great love for the Wall Streeters, but I recently heard that Goldman, for instance, is avoiding lavish parties and urging its bonus recipients not to buy ostentatiously because of the economy (read: resentment). But isn't this how economies recover and jobs are created? Or am I giving the supply-side thing too much credit? Thanks.
Frank Ahrens: Congratulations to you for wading into hot water!
There has been no doubt that this recession and attendant budget-tightening have hurt the travel and tourism industries, which depend on businesses to entertain and conference.
Yes, cutting back on parties and travel puts caterers out of work and creates all sorts of downstream job losses -- suppliers to caterers, truck drivers and on and on.
However, I think that might be nibbling around the edges. For instance, I bet you'd see unemployment drop a good 3 percent if, magically overnight, the housing bubble came back to life at 2006 rates. But would that be a good thing?
Taxes are killing us.: The US at 26.1% pays less tax than any other industrialized country except Japan at 25.8%. Sweden is at 50.2%, the UK at 35.8%, and Spain at 35.5%, for example. BTW each of these three countries had higher growth (average per capita growth 1995 - 2005) than we did. 2.5%, 2.4% and 3.1% resp. compared to our 2.1%. Also Japan's was 1% growth.
Frank Ahrens: But did you know our corporate tax rate is among the highest in the world? That makes a real difference if you're a business and you're thinking about locating in the U.S. or, say, India.
Washington, DC: Senator Nelson brought up the idea of reintroducing war bonds to pay for the wars in Iraq and Afghanistan. How feasible would this option be? The basic idea, from my understanding, is that we would then owe ourselves money, rather than China or Japan. I love this idea on paper, but what are the downsides to a national push to buy war bonds?
Frank Ahrens: That's quite an idea. Think about it: it is essentially a referendum on the wars. The public -- not the president and Congress -- would have the ability to decide to wage war or not simply by buying the bonds or not.
War bonds were very popular at the beginning of World War II, when the conflict was fresh, and especially right after the Pearl Harbor attack.
But remember this: the government started running out of money to fund the war (and was running massively high deficits) by 1944. The war-fatigued, economically strapped public was tired of hearing war bond pitches and stopped buying them. And remember -- this was a *popular* war. It took massive publicity stunts (excellent re-created, by the way, in Clint Eastwood's "Flags of Our Fathers."
But did you know our corporate tax rate is among the highest in the world?: Dead wrong. Our nominal tax rate of 35% is among the highest, but because of loopholes our real tax rate of 18% is among the lowest real corporate tax rates.
Frank Ahrens: Back atcha.
Prescott, Ariz.: Newt Gingrich held his own jobs summit today, and recycled his old tax cuts for the rich routine. Yesterday Eric Cantor unveiled the "no cost jobs program" Republican jobs program.
Which ended up being the Bush plan: Cut regulations. Freeze spending. Cut taxes. No new taxes. Off hand it is hard for me to see how cutting more taxes doesn't cost anything but the key point is this: If this stuff the Republicans are proposing is the same as what they gave us from 2001 to 2009, why do we even have high unemployment? I would think 8 years of less taxes less regulation would have boosted employment.
washingtonpost.com: Eric Cantor's magic pony jobs plan (Salon, Dec. 2)
Frank Ahrens: During President George W. Bush's two terms, unemployment started in January 2001 at 4.2 percent. In his last month in office, January 2009, it was up to 7.6 percent.
Prior to last year's recession surge, however, unemployment during the eight years of Bush's terms never got higher than 6.3 percent.
This is not an apologia for the former president: he ran up massive deficits that created mightily to the national debt, and I'm a debt hawk.
And one can reasonably argue that policies -- at least in the later part of his second term -- helped pave the way to higher unemployment. But for the bulk of his two terms, unemployment was not a problem.
Washington: This is nothing new. Read the Deserted Village by Oliver Goldsmith.
This country was developed by boosterism, by expansion of the west and by consumerism. We gave away free land and free access to markets. A lot of the problem is in the allocation of resources. Unemployed Washingtonians probably aren't aware that there is a better job market in say, Kansas, where some towns will offer free land.
Employers and employees do not drive the market. Consumers do. Consumers need to be educated that what goes around comes around. If you buy that shoddy shirt made in Indonesia no one is going to be able to hire anybody locally. That means you.
Frank Ahrens: This is a good point and it speaks to a larger point that is being debated right now during Ben Bernanke's confirmation hearing in the Senate: what role, should any, should the government take in trying to prevent booms and bust cycles, which free-marketers accept as part of the life of a market-based economy.
Tampa, Fla.: One other point, if you don't mind, on the subject of jobs moving overseas. Why do we engage in forceful and extensive protectionism for agriculture, but not for manufacturing? Agriculture jobs pay nowhere near as much as manufacturing, yet we give agriculture far more protectionism than manufacturing. We will pull out of international trade conferences if Elmer Fudd risks facing foreign competition. But we will gladly send an industrial worker's job to China.
To the extent we protect domestic industries, it should be those that create middle-class jobs, not jobs for undocumented workers.
Frank Ahrens: THAT is a great point and you can probably blame the father of the American agrarian ideal -- Thomas Jefferson.
Frank Ahrens: BTW, right now, President Obama is addressing the media on his jobs summit. He said we've seen significant turnaround in the economy but the job is not done.
He's crediting the $787 billion stimulus package for "stopping the freefall."
Tampa, Fla.: It's hard to believe otherwise rational people still argue for supply-side economics. Cutting taxes at the top will not create jobs, other than at luxury good manufacturers in Europe (Channel, Ferrari, Ch. Petrus, etc.).
Consumer demand drives our society. Demand creates jobs, not capital investment. There is no shortage of capital now, just like there's no shortage of houses here in Florida. GM doesn't need to build more plants. GM needs people with jobs to buy their cars. Cutting the inheritance or capital gains tax will not accomplish this, all the propaganda from Cato, etc., to the contrary. Even Judge Posner agrees. He makes this clear in his book, A Failure Of Capitalism.
In economic terms, the multiplier effect for tax cuts (and let's make it clear, the right means tax cuts at the top) is much less than the multiplier effect from gov't spending on public works projects and other similar programs. Any economic program should focus on this. Let the Bush tax cuts expire, especially the inheritance tax cuts. Take the revenue and spend it on jobs programs.
Frank Ahrens: This is an illustration of demand-side economics, which stands at opposites of the supply-side economics that fiscal conservatives tout.
Columbus, Ohio: What can the White House do to facilitate credit to innovators with excellent business ideas but without additional funds to get the business off the ground to the next stage? Esp businesses that will create multiple jobs for itself and various downstream companies, esp with a product that benefits "main stream" America.
Frank Ahrens: Thanks for this.
Frank Ahrens: Huh. That's funny. President Obama just said what I said earlier in this chat about government-funded job creation versus private-sector job creation.
He said: "We don't have enough public dollars to fill the hole of private dollars that was created by this crisis."
Somewhere, Ronald Reagan is smiling.
Boonsboro, Md.: The Forgotten Man: Excellent book, which makes the point that the constant flux and changes under FDR essentially froze business for 8 years. Only WWII revived the economy because a lot of the unemployed were drafted. Similar dynamic as today. Should we restart some kind of the draft as an employment creator?
Frank Ahrens: Thanks for that.
You're onto something: I think a compulsory year of national service for all Americans is a great idea. It could be a year in the military, it could be a year in the Peace Corps, whatever. We are asked to give back so little for how much we're given.
And yes, there's some excellent recent scholarship on the efficacy -- or not -- of of FDR's alphabet-soup agencies. The chief villain appears to have been the NIRA -- the National Industrial Recovery Act -- which (shockingly) actually allowed businesses to create cartels and monopolies to fix prices. (An example, by the way, of demand-side economics.)
Frank Ahrens: Thanks for all the excellent questions, everybody. It's been a stimulating hour. I hope we can hold these more regularly.
And to those of you who have been reading this and are out of work or underemployed, I wish you the best of luck!
Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.