If the latest unemployment report tells us anything, it is that government isn't the problem that has caused the weak U.S. recovery, but a private sector that is focused solely on maximizing profits for their investors and CEOs, rather than creating more jobs. And private sector corporations have succeeded in maximizing their record profits, as a percentage of GDP.
Friday's Labor Department report showed just 142,000 net nonfarm payroll jobs created, far below the estimates, while the unemployment rate barely fell to 6.15 percent. There were 134 private payroll jobs (versus 213 private sector jobs in July) and just 8,000 government jobs added. But stay tuned for revisions when seasonal corrections are made, as we said.
Nor was government the problem that caused the Great Recession and housing bubble in the first place; but the lack of it -- of government legislation and regulations that could rein in the excesses of a shadow banking system that hid so much debt.
In fact, growth did surge just as the Great Recession officially ended in June 2009, because of the $835 billion 2009 American Recovery and Reinvestment Act (ARRA), but it wasn't enough, and the economy soon reverted back to its "new normal," 2 percent GDP growth rate.
Graph: Trading Economics
A majority of economists now agree ARRA did create jobs and prevented a Greater Recession, or even another Great Depression, which Europe is currently going through for a third time since 2008.
The Initiative on Global Markets at the University of Chicago -- hardly a hotbed of liberal or Keynesian thought -- regularly surveys a number of the leading American economists about a variety of policy issues. And the results from their 2014 survey, as reported by economist Justin Wolfers, overwhelmingly conclude that government ARRA stimulus spending was beneficial to both growth (benefits exceeded its costs) and jobs (more jobs were created or saved).
In fact, it is private sector growth that has been lacking in both job creation and investment in plants and equipment over the past five years since the official end of the Great Recession. Private sector capital stock, at 22 years of age, is the oldest it has been since 1958, said economist David Rosenberg, and is strongly suggestive of an upgrade cycle (not to mention the fact that America's spending on public infrastructure at a 20-year low!).
But will that happen? It seems the private sector would rather create jobs overseas than in the USA that has caused the weak jobs recovery. The so-called "underemployment rate" of part-timers and those who quit looking for work dropped to 12 percent from12.2 percent in the August report -- big deal.
There is much evidence of the out sourcing of jobs. U.S. multinationals shifted millions of jobs overseas in the 2000s, say data from the U.S. Department of Commerce. "U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers... cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million," said a recent report by the Center for American Progress.
That is why ARRA worked, and similar government stimulus programs would work. The bottom line is there are certain times, as well as sectors that only governments can fund and so create jobs.
Harlan Green © 2014