The 10% factor

With the report that the unemployment rate has risen past the symbolically significant 10% rate to 10.2% comes the furious spin. Republicans spin this as an indictment of the President’s policies, though surely even the, well, stupid “stimulus” boondoggle and the wasteful quasi-socialist industrial policy of the car company bail-outs cannot realistically be said to have contributed to it. They are too small and too recent to have such an effect. The White House advisers are, correctly in my mind, reminding people that the unemployment rate is a lagging indicator that will rebound only after economic growth itself is well on its way. A rise in the figures for temporary hires suggests that is, in fact, happening, as employers wait to commit themselves to hiring full-time employees until they see that growth has picked up sufficiently strongly and durably to justify the investment.

At least for a brief moment we are not hearing, mercifully, the constant bleating about how the stimulus “created or saved” such and so many jobs that, even if taken at face value, still amount to only a small fraction of jobs lost. And the “if” is a big one. “Jobs saved” is a completely imaginary figure based on so many imponderables that it rivals in reliability the enemy body counts estimated by the military after skirmishes in the jungles of Vietnam. “Jobs created” is only marginally better and, if one excludes jobs that went to teachers and other members of public employees’ unions, laughably small. One estimate has it that, under more credible figures, each of these jobs cost nearly a quarter million dollars. Cheaper just to hand each recipient $100,000.

As of this writing, our President himself has been silent, but one awaits his usual explanation: “It’s George W. Bush’s fault. We are just cleaning up the mess we inherited.” This is of a kind with all his explanations for sundry hesitations, missteps, and failures and will remain so for as long as he can delude himself and a sufficient portion of the American public into thinking such mush. The recent elections are the morning alarm going off the first time. He can hit the snooze button, but the next election’s results will sound much more insistent.

I actually agree with him up to a point. He did inherit a messy economic situation that resulted from an asset bubble that set off a classic financial panic. To that extent he cannot legitimately be faulted for the current unemployment rate. As these matters proceed in a cycle that needs to work itself through until the economic underbrush has burned and new sprouts of prosperity can reappear, it is not Mr. Obama’s doing that the rate has gone up well beyond what he and Joe Biden promised when the stimulus bill was foisted on the American people.

But by the same token, it is very little the fault of the Bush administration that this recession occurred. The asset bubble was primarily the result of the Fed’s easy credit policies maintained too long and of Congressional laws from a prior era that pushed for home ownership by unqualified buyers in the guise of eradicating some imaginary racism in lending. In classic post hoc, ergo propter hoc fallacy, the only evidence for this racism was the disparity in home ownership between Asians and non-Hispanic Whites on the one hand, and Blacks and Hispanics on the other.

To the extent Bush can be faulted, it is the deficit spending aggravated in part by a large expansion of government social spending through the Medicare drug benefit expansion and the “No Child Left Behind” program. The deficit spending, tax cuts, and low interest rates expanded the debt and helped drive down the value of the dollar, while artificially stimulating the economy. While the first and (more convincingly) the third might have made sense to help ease the recession Bush inherited after the 2000 bursting of the tech bubble and the economic hit of 9/11, only the second of these made sense over the full length of Bush’s term.

But to the extent the Bush deficits helped bring about or worsen the current recession, the incumbent in the White House is not in a position to chide Bush. With the massive current deficit and with the huge structural deficits planned for the future, Mr. Obama appears intent on showing up Mr. Bush as an amateur in profligacy. And therein lies the problem for me. The President is not at fault for causing the recession. Nor is he at fault for not bringing down this unemployment rate sooner. Sure, either he revealed utter economic incompetence or he simply lied when he predicted that the stimulus would keep unemployment from rising above 8%, a figure that, based on leading indicators and the steep growth of the unemployment numbers for the prior months, was obviously fantastical. But these panic-induced economic jolts occur too suddenly for government policy to have much effect, with the possible exception (and I want to emphasize “possible”) of steps to assure liquidity in the banking system.

The problems I see with this President and with the Fed are the reckless abandon with which government seeks to take over the economy and the huge amounts of money that continue to slosh around like so many mines ready to explode as economic activity increases the velocity of money. If the economy is showing underlying signs of growth, as the White House insists, the Fed’s continuing near-zero interest tolerance must raise eyebrows. High government spending, inevitable tax increases, and low (or even negative) interest rates to me sound like the perfect opposite of sound economic policy. It erodes the currency, reduces private productivity, and maximizes economic inefficiency.

While the President is not to blame for the current surge to 10.2%, he is increasingly responsible for a failure of the rate to decrease significantly. More clearly, there will be no hiding if his (and his Congress’s and party’s) fraudulent economic policies cause a double-dip recession, high inflation, or, as may be most likely, a long malaise of stagflation. Even if it might have been credible once, “It’s Bush’s fault” is increasingly irrelevant and, to the American people, incredible.