The jobs numbers released by the Bureau of Labor Statistics on Friday confirm the economy probably won't see robust growth any time soon. The official unemployment figure remains a disappointing 7.8 percent, though this only presents a partial view of what's going on.
The broad measure of unemployment, which captures the discouraged workers who have abandoned searching for employment, ticked up half of 1 percent, to 14.4 percent. Blacks already facing jobless levels higher than the national average saw their official unemployment rate jump a full percentage point to 13.7. Almost 40 percent of the unemployed, some 2.2 million Americans, have been out of work for 27 weeks or longer. For them, this means shrinking savings, increasing debt and atrophying skills, all of which conspire to make it harder to rejoin the ranks of the employed.
The New Year's tax-and-spend deal to resolve the "fiscal cliff" just delayed hard questions until March, when the debt ceiling debate returns. Unsurprisingly, the massive legislative package included an extension of unemployment benefits. This might provide temporary relief to the long-term unemployed, but it comes with the nasty side effect of diminishing the incentive to look for work at the margin. Just as Uncle Sam's policies are discouraging the labor market on the supply side, they are hindering job creation on the demand side by perpetuating uncertainty in the investment environment. Wall Street is left wondering what's going to happen with debt.
Federal red ink now exceeds $16.4 trillion, which is slightly greater than our gross domestic product (GDP). It might not put us into Greek territory, where the debt-to-GDP ratio is 160 percent, but it is dangerously close to Portugal's 117 percent ratio. That European nation is getting ready to jump off its own fiscal cliff with a round of massive tax increases. The U.S. fiscal cliff deal was presented as getting the tax issue out of the way, so as to leave Congress free to tackle spending.
If history is a guide, there will be no change in Uncle Sam's fiscal habits, nor will there be reform to the entitlement programs that are bankrupting the nation. The Congressional Budget Office projects outlays will add $4 trillion to the debt over the next decade. For now, we have at least another two months of uncertainty about the direction of fiscal policy, which puts businesses in a holding pattern, waiting before making the investments that would create jobs in the private sector. Without that essential spark, there will be no explosion in economic growth. Our public debt-to-GDP ratio is beyond the 90 percent level that economists Carmen Reinhart and Kenneth Rogoff say acts as a barrier to economic expansion.
Unless President Obama gets serious about limiting government spending and the burden of regulation, 8 percent unemployment will become the new and undesirable norm.
The Washington Times
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