Reason Foundation

http://reason.org
http://reason.org/news/show/unemployment-problems

Reason Foundation

What We Learned from Friday's Unemployment Numbers (Video)

Anthony Randazzo
September 4, 2010, 12:00pm

What did we learn from Friday's unemployment numbers? At least two things:

  1. The economy isn't going anywhere right now. It is lethargically passive, treading water at the eight foot mark in the deep end.
  2. Releasing unemployment numbers right before a three day weekend is a great way to get it out of the news cycle.

Okay, the release wasn't politically timed, it was on a normal schedule. But it was convenient for the Obama White House that is trying to avoid a Clintonian loss of Congress.

But the main thing to take away from the numbers is that the economic policy of the administration that has been directing Congress and driving the nation isn't working. We have three options moving forward.

  1. Stay the course: the administration can just cross its fingers, hope the recession cycles through quickly, and then take credit for a natural course of events.
  2. Spend more: this the more likely option, one that the Krugmans of the world advocate, and would just make matters worse by continuing to perpetuate a lethargic recovery since government spending can't produce a sustainable economy.
  3. Change policies: this could come in the form of anything from of a radical shift (unlikely) to a heavier focus on tax cuts and/or ratcheting down the rhetoric slamming Wall Street and creating uncertainty.

One of the best approaches to fixing the economy would be to offer a tax cut to small businesses and big business that is matched equally or greater with cuts in spending. To do this effectively, those cuts would need to be very deep—something the debt commission will hopefully recommend. Curbing the negative effects of Dodd-Frank that are creating uncertainty couldn't be done fast, but it would help. Avoiding a tax hike at the end of the year on investment in the economy should also be at the top of the to-do list.

While these measure would take some time to kick in, they would work better than spending or tax credits that send checks. Mostly, they would allow private capital to reposition itself in the economy and start perpetuating growth.

The case for this approach (which is far from comprehensive or completely spelled out here on this blog) is made stronger by the failure of the status quo:

Well, unemployment is at 9.6%. Over half of the stimulus money has been spent, much of the rest of it has been designated for spending, and unemployment is still at 9.6%. And there is no widespread innovation in the market, just unemployment continuing to be between 9.5% and 10% pretty much the whole year.

Christina Romer said on Monday that we should spend more. But she also basically admitted the first plan—her first plan (also known as The Stimulus)—failed. So why would we let her fix it? Why would we try the same plan again?

The question was the volume of spending, as Krugman argues. The government tried to spend as fast as it could and it still has $300 billion of that money unspent as of today (even though much of it is earmarked to be spent). If the stimulus had been $2 trillion, conceivably we'd still have much of that left to spend. This isn't China where you can throw money at anything in the backwater and see it grow because of the desperate needs of a communist starved nation.

Uncertainty is keeping the economy still. Some people are moving and building and spending. Most aren't. The Dodd-Frank rules haven't helped the investment shortage problem. All that money the banks are holding on to, thanks to Dodd-Frank, they'll just keep on holding that for a while. And have we mentioned the failed housing policies on the blog before?

Option 3—policy change is the way to go.

Here is a video from Friday where I talk about the economy and the unemployment numbers:


Anthony Randazzo is Director of Economic Research


Print This