Unemployment up, 401Ks down and vicious cycles

01 Jun

Same old, same old.

The May monthly jobs data has been released and the anemic increase of only 69,000 jobs sent the markets reeling.  Job creation in the prior two months was revised downwards by 49,000 jobs. The unemployment rate inched up to 8.2%.  First quarter GDP growth was revised downward to 1.9% from 2.2%.  Earlier this year the Congressional Budget Office had forecast economic growth in 2013 of only 1%. It looks like we may get there if this continues.

I doubt anyone from the Obama Administration reads this blog, but if they do they might want to heed our advice.

If a government implements a policy and the results are not as expected and you want different results, then policies need to be changed.  Simple, huh?  Well, it is simple if you are not a leftist ideologue.  One of Obama’s problems is that he does not understand the big picture, or if he does, he cannot reconcile himself to what is actually happening to do anything useful about it.

In the larger scheme of things, our major, chronic economic problems are not the result of the price of oil bouncing around (as painful as that may be when it goes up) or similar ebbs and flows that affect day to day economic life.  Our more serious, intractable, fundamental problems are the result of very long-term, seriously wrong decisions made by many politicians of many stripes over many decades.  In a nutshell, the shorthand description for what is going wrong in the economy is that the whole system of social welfare state government imposed entitlements is collapsing.  Newsflash people; social welfare states around the world are going down.

The whole massive, overbearing, public sector imposed superstructure of transfer payments, welfare programs, regulations, subsidies, underfunded public employee pensions and benefits, government health care programs, etc.  is failing.  And yes, it was destined to fail.

The belief that fewer and fewer people would assume more and more of the tax burden for more and more benefits for people who did not pay for them could never have worked.  Basic logic says that if you start with an incorrect premise you end up with an incorrect conclusion. It has just taken a long time (since the Great Depression) for this inevitable result to play out.  More government spending leads to lower growth which leads to more entitlement spending, lower growth, lower tax revenues and higher deficits.  We are in a vicious cycle.

The left has so much political capital invested in the myth that a social welfare state can actually function that they cannot see their way out of this dilemma.  To do so they would have to undermine their political base and throw out the most closely held assumptions of their political ideology.  This is something the left will not do.  In short, that is Obama’s problem. He cannot see the collapse of the social welfare state for what it is and he cannot conceive of alternatives.  For the President every problem is just another opportunity to expand government, raise taxes and increase regulations.  I think he actually believes his own class warfare rhetoric and believes in the mistaken assumptions underlying the whole concept of the social welfare state.  He is a social welfare state kind of guy.  Always was and always will be.

We have not only run out of other people’s money, as Margaret Thatcher once quipped, but in Greece they may have to invent new money (i.e. resurrect the drachma) to replace the money they have run out of (Euros) to try to continue fooling people into thinking that the social welfare state can be maintained and that life can go on as usual.   This is not problem solving but sleight of hand and it, too, will fail.  For a country to invent Monopoly money is an insult to Monopoly, which intelligent people realize is only a game.

This overriding issue, the collapse of the welfare state, manifests itself in many ways but is often viewed (imprecisely) through the lens of our short-term political perspectives.  In Wisconsin, the fight with the unions was not really about the immediate state budget deficit, collective bargaining or how much public employees would pay of their retirement and health care costs. The more severe, underlying  issue was how to get Wisconsin out of the death grip of a collapsing welfare state scenario.  Limiting collective bargaining and changing health care and retirement benefits were just the tools to address the underlying problem.  

California, Illinois and New York are other examples where problems are described in short-term budget/revenue terms but the problems are really caused by the fact that these states have embraced the welfare state approach lock, stock and barrel and are now sinking fast.  Unfortunately for them they don’t have a Scott Walker in the Governor’s mansion.

High tax states are losing affluent taxpayers.  Many states are not just running out of other people’s money, they are running out of taxpayers.  The goose that was laying the golden eggs decided that the grass was greener on the other side of the road and headed to lower tax pastures (how was that for a seriously mixed metaphor!), but you get my point.

The welfare state has created such a crushing burden that we have arrived at a tipping point. President Obama has no real proposals to address the issue of entitlements except to try and create more of them.  The President even disavowed his own Simpson-Bowles Commission recommendations which included some entitlement reform recommendations.  Maybe he thought somehow he could get the higher taxes anyway without the entitlement reforms.  He may even actually believe that Obamacare really would lower health care costs, so firm is his belief in the welfare state. Who knows?  But as long as the country has a social welfare guy in the White House we will continue to head towards a fiscal cliff.  We may even go over the cliff.

The markets are telling us something. It pays to listen.


Posted by on June 1, 2012 in politics


3 responses to “Unemployment up, 401Ks down and vicious cycles

  1. P. Henry Saddleburr

    June 1, 2012 at 9:13 pm

    Nice piece and I realize that you’re giving Baracka Soetro Kinshasa Moonbean Light Giver Caligula Nero Obama the benefit of the doubt as a matter of courtesy………..

    But this asswipe is destroying the economy on purpose. He mouths platitiudes to distract people with his shiny objects, but he is on target with his plan to destroy America, as is well documented in Dreams FROM my Father.

    He is an enemy of America and pussy footing around that basic fact, putting a smiley face on it, although soothing to the moderate PC dopes, really doesn’t address the crux of the problem.

    Obama’s Number One Enemy is the American People.

    Period. He HATES Americans. Even if he plays nicey nice and takes their bucks.

    He HATES me.

    The feeling is mutual, I might add, but I have some semblance of self control. OBammy? Not so much.

  2. Saddlesore

    June 1, 2012 at 9:53 pm

    Sometimes I agree with you that Obama actually wants to destroy the economy intentionally. Other times I think he is just so blinded by his ideology that he can not accept that his policies are total failures and he blames others, notably Bush and Republicans, bankers, oil producers, coal mining companies, i.e. the scapegoat du jour.

    In either event, whatever Obama’s motivation his policies are having a disastrous effect on the economy and the actions conservatives need to take is the same regardless……get his ass out of the Presidency before it is too late.

  3. Deborah Sampson

    June 3, 2012 at 6:32 pm

    It’s intentional. The man and his minions are evil incarnate.


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