Last night, at the State of the Union address, President Obama spoke of a recovery, but the evidence for such a recovery doesn’t really exist.
The national unemployment is now 8.5% (December’s), its lowest level since January 2009, but while some saw this welcome news as something to celebrate, it hides a much darker economic picture: the jobs report vastly undercounts the unemployment rate. Moreover, as of this writing, we don’t know if December’s jobs report is a trend, or if, as some economists predict, economic growth will slow in the first quarter of 2012, forestalling some of the gains made. In November, the unemployment rate fell from 9% to 8.6%, but this was not due to an increase in jobs, but due to a decrease in the numbers of people “actively seeking” them. “The 315,000 who dropped out of the labor market exceeded the 120,000 new jobs,” notes Edward Luce, former speechwriter to then Treasury Secretary and Obama economic advisor Larry Summers in The Financial Times. “If the same number of people were looking for work today as in 2007, the jobless rate would be 11%.” In December 2007, the U.S. economy employed 146 million; today, four years later, it employs 140 million. The population has grown; the number of jobs has declined.
Part of the problem is the structure of our economy. To describe our rut economist Tyler Cowen titles his book, The Great Stagnation. Peter Thiel, PayPal founder and billionaire Facebook investor, calls it, “The End of the Future.” The past’s optimism is foundering on the rocks of our very rocky economic recovery. The economy is shifting in ways we can’t begin to understand. Nobel Prize-winning economist Michael Spence and co-author Sandile Hlatshwayo estimate that from 1990 to 2008 all net job creation has been in the “non-tradable sector,” chief among them health care and government jobs. Alas these sectors aren’t known for their productivity and are hardly the jobs that can propel the growth necessary to accommodate a new workforce. The manufacturing jobs which once went to the growing middle class is getting more productive–but with fewer workers and more machines. In 2009–the height of the recession–productivity in U.S manufacturing increased by 7.7%, more than any other country followed by the Bureau of Labor. America’s share of world manufacturing stood at 20% in 2009, down only 2%.
If America is to beat this recession, it will need new firms, churning out new jobs. Indeed, according to the Kauffman Foundation, America’s leading funder of economic research, since 1980 nearly all net job creation has come from firms that are less than five years old. But since 2007, new firm formation has slowed. The number of new companies formed in 2009 is 27% lower than past years, meaning that companies formed in 2009 employ one million fewer workers than the historic norm.
President Obama has done nothing to change that picture, and indeed, he has made it worse. He has increased regulations on businesses and canceled the Keystone pipeline. He is doing seemingly everything he can to make government the sole employer.