Anyone who buys into Keynesian eco nomics must be completely baffled by Friday’s jobs numbers from the Bureau of Labor Statistics. After all, the government has been trying to juice up the economy through unprecedented boosts in spending and in the money supply for nearly three years now. It’s been textbook fiscal and monetary expansion, fully in line with the liberal, Keynesian school of economic thought. (Actually, it’s been Keynes on steroids.)
None of it has worked. And the numbers — as jobs data from two recent government surveys shows — are truly grim.
The “payroll survey,” for example, which canvasses businesses, showed that total employment last month rose a mere 18,000, and May’s job-growth figure was revised down to 25,000. Thus, employment effectively has been flat for two straight months. No headway is being made against the huge job losses from early 2008 through the beginning of last year — about 7 million, according to this survey.
Nor can all this be blamed on the loss of government jobs — including 39,000 in June and 48,000 in May. The fact is, lower government employment would actually be an economic positive if accompanied by robust private-sector growth. After all, shifting jobs from relatively unproductive government work to market-driven, productive private-sector endeavors would only help the economy.
Alas, private-sector payroll growth is anemic. Nongovernment payrolls expanded by only 57,000 last month and 73,000 in May. To make a real difference, the economy needs to crank out 200,000 to 250,000 jobs a month — at the least.
The more important employment picture, however, is portrayed by the government’s other key survey, which questions folks in their homes and better captures start-up and small-business activity. The numbers from this “household survey” were especially bad; for example, employment in June, the survey shows, tumbled by 445,000 jobs. Since its recent high in March of this year, the household survey points to total job losses of some 530,000.
Indeed, the nation’s labor force itself is shrinking. After contracting for much of last year, the labor force expanded from January to May this year. But last month, it resumed its slide, falling by 272,000 jobs. This reflects a great degree of discouragement among workers, many of whom simply have given up on finding work.
The labor-force participation rate, another key indicator, ticked down to 64.1 percent in June. That’s the lowest since March 1984. For good measure, the employment-population ratio also dipped: June’s 58.2 percent figure matched last October’s, which was an 18-year low. Overall, according to the household survey, job losses stand at 7.25 million since job levels peaked in November 2007.
Keynesians try to blame June’s bad jobs numbers on the political wrestling over the federal debt cap. They say that uncertainty over whether the cap will be lifted — and government spending concurrently slowed — is driving job losses. Spending curbs (and fear of them) would be economically catastrophic, they believe.
That, of course, is absurd. Federal debt certainly has crept into the economic equation in recent years; how could it not, given its rapid jump? But the problem from entrepreneurs’ point of view is the increased taxes that such government debt levels threaten to make inevitable.
Weak GDP and job growth is all about costs and uncertainties faced by entrepreneurs, businesses and investors. Those costs and uncertainties have to do with higher taxes, more regulation, stagnant trade policy, higher government spending and related debt and freewheeling monetary policy.
The right recipe for getting the economy back on track is not more government spending and jobs, as the Keynesians and their political followers desire. It’s substantive and permanent tax and regulatory relief, reduced governmental barriers to trade, sound monetary policy focused on fighting inflation and reducing the size of government. Short of that, we face a continuing uneven, underperforming economic recovery, at best — and slipping back into recession, at worst.
Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council.