It’s not often that a president’s economic policy blows up the same week that his foreign policy blows up and his energy policy blows up, but this morning’s miserable unemployment report gives Obama a trifecta. The BP oil spill just gets worse and Obama looks helpless and feckless. Obama’s main squeeze in the Muslim world, Turkish prime minister Tayyip Erdogan, has turned into an ally of Iran and Hamas; and the much-vaunted economic recovery turned out not to be there.
This morning’s payroll report from the Bureau of Labor Statistics shows 411,000 temporary jobs from the U.S. census, and only 20,000 new jobs in the private sector, that is, barely outside the margin of statistical error. The warning signs have been there for weeks: Consumer spending stopped growing in April, which is not surprising, because Americans should be saving roughly 10 fund of their income to fund the biggest retirement wave in history. With the bounce-back in stock prices last year, more affluent consumers decided to spend some of their gains—but the May stock market crash (which appears to be continuing this morning) should change their minds.
Obama’s Keynesian pump-priming has failed. In fact, the global Keynesian approach adopted by all the major governments had already broken at its weakest link, namely in Europe, where highly indebted governments are bankrupt. The U.S. isn’t bankrupt nor likely to be in our lifetimes, but you can’t run a federal deficit of 12 percent of GDP with a 3 percent savings rate forever.
The stock market crashed in May because parts of Europe went bankrupt (except for a trillion dollar bailout), threatening the viability of the banks that held the government debt. But U.S. investors still believed that the U.S. economy would recover from the Great Recession of 2008-2009, as it always had from earlier recessions. They appear to have been wrong.
Job growth in the U.S. always has come from the bottom up; old jobs disappear, mainly from large companies who have reached their best-used-by-date, and new jobs are created by startups. The Reagan recovery, driven by tax cuts and deregulation, allowed entrepreneurs to flourish and create jobs. The Obama non-recovery, driven by government spending supported by a captive financial system, has left entrepreneurs gasping for breath. The grass roots of the economy are dying; all the available evidence shows that small business is choking to death even while the large banks make profits borrowing at next-to-nothing and lending the money back to the U.S. Treasury.
The dog doesn’t hunt. Jobs aren’t coming back. And Obama has yet another disaster on his hands.
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