August Jobs Report Disappoints

This morning brought another disappointing jobs report from the Department of Labor.  According to the Bureau of Labor Statistics, the economy added a mere 96,000 jobs in August.  By contrast, in August of 1984, during the Reagan Recovery, the economy added 241,000 new jobs.  (Go to this website and insert the appropriate dates to locate this figure.)   As previously explained on this blog, the labor force was much smaller during the Reagan Recovery.    Thus, in order to replicate the rate of job growth the country experienced in August, 1984, the economy should have created over 300,000 new jobs in August, 2012.  In short, the Obama "recovery" is still sputtering, and the Reagan-Obama jobs gap is still growing.  To be precise, for the months of April, 2012 through August, 2012, the Reagan-Obama jobs gap stands at 1.7 million.  (See here for a calculation of the April through July gap).

The President and his allies often speak of the need to share the fruits of prosperity.  Many Americans likely wonder "what prosperity?"

Associated Press Rewrites Economic History

Orwell Would Be Proud

Today's Associated Press reports that the Obama campaign plans to give former President Bill Clinton a more prominent role in the upcoming Democratic Convention.  News outlets from Fox News to MSNBC and everywhere in between are republishing the story as "news." (See here, here and here for examples.)  In "reporting" this story, the AP, like the Ministry of Truth in George Orwell's 1984, attempts to rewrite economic history.   In particular, the story asserts that the move to highlight Clinton will:

"remind voters that a Democrat was in the White House the last time the American economy was thriving."

The statement that "a Democrat was in the White House the last time the American economy was thriving" is simply false. In 2005, the nation's unemployment rate was 5.2 percent in the first quarter, 5.1 percent in the second quarter, and 5.0 percent in second and third quarters.  (See this report from the Bureau of Labor Statistics.)   Moreover, as previously noted on this blog,  the unemployment rate was at or below 5.0 percent for all 24 months of 2006 and 2007.  Indeed, between late 2005 and early 2008, the nation's unemployment rate was at or below 5 percent for 30 straight months.   By contrast, during President Obama's Administration, the unemployment rate has exceeded 8 percent for 41 months, and job growth is stagnant compared to that experienced during the Reagan Administration, for instance.

Perhaps Republicans should feature George W. Bush at their convention, to remind the American people just how robust the economy was less than a decade ago.

Only 80,000 Jobs in June/Reagan-Obama Jobs Gap Widens

A few minutes ago the Labor Department released another disappointing jobs report.   The economy added only 80,000 jobs in June.  This is the third month in a row that the economy has added fewer than 100,000 jobs.  Indeed, the latest figures show that the economy added 68,000 jobs in April and 77,000 jobs in May, for a total of 225,000 in the entire second quarter of 2012.     By contrast, in July, 1984, during the Reagan recovery, the economy added 379,000 jobs after adding  308,000 in May, 1984 and 363,000 in April, 1984, for a total of 1,050,000 in the second quater of that year.   (Go to this website and insert the appropriate month and year to locate this data).

Moreover, as previously explained on this blog, the gap between the 1984 numbers and the 2012 numbers actually understates the difference between the Reagan Recovery and the Obama Recovery when it comes to job creation. After all, in 1984, the American workforce was significantly smaller than it is now.  In particular, the civilian workforce in June, 1984 was 113,817,000, while the June, 2012 figure is 155,163,000. Thus, even if the economy had added 379,000 jobs in June, 2012 as it did in June 1984, such an increase would reflect a significantly smaller rate of employment growth than the June 1984 increase. A true "apples to apples" comparison of the 2012 and 1984 figures therefore requires one to adjust the 1984 figures upward, to determine how many jobs the economy would have to add today to achieve the same rate of job growth achieved during the Reagan recovery. We can obtain the relevant conversion factor by dividing the June, 2012 labor force by the June, 1984 labor force; the result is 1.3623.

If we apply this conversion factor to the June, 1984 employment increase, we obtain 516,312. Thus, the true jobs gap between the Reagan and Obama recoveries for June, 1984 is 436,312.    Moreover, applying the same methodology reveals that the jobs gap between the second quarter of 2012 and the second quarter of 1984 is 1,205,415 jobs for these quarters alone, a stunning gap that is just one example of the underperformance of the Obama recovery.

If This is Fairness ......

In a CNN Op-ed, Professor Julian Zelizer urges the Democratic Party to make economic fairness to the middle class the centerpiece of its political agenda as the 2012 election approaches. Zelizer sees an analogy to his own characterization of the party's strategy during the 1930s. Quoting another historian, Zelizer claims:

"This is a familiar strategy for the Democratic Party. During the 1930s, according to the historian Lizabeth Cohen, the Democratic Party fought for a vision of moral capitalism whereby government and other institutions, such as unions, would lessen some of the suffering that could be inflicted in the free-market economy."

Zelizer's history is a little out of date. Despite the rhetoric, 1930s Democrats in fact fought for a vision of state-enforced cartelization, including the cartelization of labor, that, when implemented, both deepened and lengthend the Depression. (Many 1930s Democrats also fought to defend Segregation, hardly an example of "fairness to the middle class." Though it should also be noted that, during post-New Deal World War II, FDR issued executive orders banning racial discrimination in factories making weapons and ammunition for the military.) That vision first came to fruition in the 1933 National Industrial Recovery Act ("NIRA"), the centerpiece of FDR's New Deal. The NIRA encouraged industries to proposed so-called "Codes of Fair Competition," which, if approved by the President, would have the binding force of law. Such codes imposed express price fixing, output limitations, barriers to entry and/or various practices that facilitated anticompetitive collusion. Moreover, industries could only obtain approval of such codes if they agreed to pay minimum wages and allowed their employees to join unions --- labor cartels --- that then bargained for higher wages.

Of course, the Supreme Court unanimously invalidated the NIRA in Schechter Poultry Corp. et al. v. United States, reversing the criminal conviction of a small corporation and several of its middle class owners. (The Roosevelt Administration had indicted the defendants on 60 counts of violating an NIRA code. Violations included failure to pay minimum wages (that is, employing too many workers) and --- get this --- allowing customers to select individual chickens for purchase, contrary to the code requirement that the defendants and their rivals sell chickens in blocks.) Ironically, the Supreme Court would later declare so-called "block booking" (requiring customers to purchase an entire package of movies, for instance, unlawful per se under Section 1 of the Sherman Act.) The Court unanimously held that the Act was an unconstitutional delegation of authority to the Executive Branch and that application of the statute to the defendants exceeded the scope of Congress's power under the Commerce Clause. After the decision, Justice Brandeis sought out a lawyer from the Department of Justice and asked him to convey a message to FDR:

“This is the end of this business of centralization, and I want you to go back and tell the president that we're not going to let this government centralize everything."

Congress responded to Schechter by passing the National Labor Relations Act, which empowered individual employees to form unions --- labor cartels --- and thereby drive wages above free market levels.

Of course, proponents of centralization (both then and now) claim that expanding the power of the National Government will somehow encourage economic recovery and thus full employment. But the data show otherwise. For instance, President Obama's first Chair of the Council of Economic Advisors, Christina Romer, concluded that the NIRA raised prices and wages and thus slowed economic recovery. See Christina D. Romer, Why Did Prices Rise in the 1930s?, 59 J. Econ. Hist. 167, 187-93, 197 (1999). More recently, two UCLA economists, Harold Cole and Lee Ohanian, concluded that various New Deal policies, particularly those that artificially raised wages, both deepened and lengthened the Great Depression. Indeed, these scholars conclude that FDR's New Deal prolonged the Depression by seven years. Finally, in 1999, this blogger argued that 1930s state and federal policies that raised wages likely exacerbated the Depression, by thwarting the process of ordinary macro-economic adjustment. See Alan J. Meese, Will, Judgment and Economic Liberty: Mr. Justice Souter and the Mistranslation of Liberty, 41 William and Mary L. Rev. 3, 48-49 (1999). (I hasten to add that unlike Drs. Romer, Cole and Ohanian, this blogger's arguments were purely theoretical and did not rest upon the sort of sophisticated econometric analysis deployed by these economists.) That is to say, FDR's policies deprived millions of middle class or potentially middle class Americans access to employment, hardly a "fair" result or exemplar of "moral capitalism." Indeed, the NIRA, with its coercive limits on price, wages and output was hardly capitalism, moral or otherwise

To be sure, some New Deal policies ameliorated the plight of unemployed Americans. For instance, the Work Progress Administration ("WPA") provided jobs for millions working on parks and various forms of public infrastructure. Ironically, many who took such jobs were unemployed because other New Deal policies, such as the NIRA and NLRA, eliminated jobs these individuals might otherwise have obtained. As Richard Epstein has observed, coercive interference with free labor markets and resulting unemployment often gives rise to offsetting policies designed to ameliorate the human cost of such misguided policies. Speaking of the New Deal, Epstein has observed:

"[I]n 1935, American labor law created a system of collective bargaining whereby employees bargain with a single voice. That system allows unions to seek, and often obtain, monopoly profits for their members. That system in turn reduces the number of workers hired by the unionized firms. So what is to be done with the excess workers? They should be shepherded into job-training programs, funded by the public, which would allow them to reenter the labor force with other jobs."

The WPA, of course, was an example of such a countervailing program only made necessary by antecedent and unjustified interference with free markets that destroyed middle class private sector jobs.

Hopefully today's Democrats have a different conception of "fairness to the middle class" that that which apparently animated the NIRA, NLRA and similar New Deal policies.