Saturday, July 7, 2012

Private Sector Jobs Are Not Doing Fine

The unemployment numbers were disappointing again yesterday. More troubling, however, is the President's failure to even discuss what's needed to get the private sector employment level back to its 2008 peak. Based on current trends, it will be at least several more years before that happens.

And that in turn will have extremely serious consequences for the size of government that we can afford to maintain.

Private-Sector Jobs Still Only Half Recovered tells the tale with facts, some of which are as follows:

"Commenting on the June employment report released Friday, President Obama pointed out that private-sector employment has grown by 4.4 million jobs over the past 28 months.

He was right, of course. But he might have added that another 4.5 million jobs have to be tacked on in order to match the last peak in private-sector employment of January '08.

Against that uninspiring goal, then, the glass is still more than half-empty. Also, progress has noticeably slowed. At the rate of job increase through spring 2012 (April-June), it will take more than four years, until July 2016, for that January '08 peak to be regained.

At that pace, it will have taken 8½ years to regain the peak. By comparison, in all previous recessions since World War II, it's never taken longer than four years and five months for private-sector employment to match its previous peak. . . .

WHILE PRIVATE-SECTOR EMPLOYMENT has at least climbed nearly half-way out of its recent valley, government employment continues to hemorrhage. If we leave out the temporary hiring and firing of Census workers on the federal level in 2010, then the hemorrhaging began in August 2008 and has continued almost without letup since then.

In June, total employment on all levels of government ran 21.943 million, down from 22.580 million in August '08—a decline of nearly 640,000 jobs.

But while such pain in the public sector is nearly unprecedented since the end of World War II, it still pales in comparison with what has happened to private-sector jobs. In percentage terms, government's decline from August '08 through June 2012 comes to 2.8%. From its own peak in January '08, private-sector employment as of June 2012 has still declined 3.9%, despite gains over the previous 28 months.

Exclude the U.S. Postal Service from government employment—whose downsizing is understandable, given its greatly diminished responsibilities—and even that comparison changes. Compared with the 3.9% decline for the private-sector from its own peak, government jobs excluding postal workers have declined 2.3% since August '08."

My Take

In the end, private sector growth and profitability must pay for the costs of running the government. That's a simple fact concerning the fundamental difference between the roles of the private and public sectors. One pays for the other.

To repeat, the public sector is dependent on the performance and growth of the private sector.Yet we hear from the President that 4.4 million private sector jobs have been created in the past 28 months, thereby suggesting that the "private sector is doing fine" and growing nicely. That's a crock.

There are more government jobs in relation to total employment than existed in 2008. In fact, as a percentage of the whole, the private sector has lost considerably more jobs than has government.

That's not the basic point, however. The call for more government employment at this time or any time in the next ten years or so is irresponsible, to say the least. We have to downsize government and do so seriously, unless and until the private sector has far surpassed its peak level in 2008. Thus, we're doing the wrong thing and talking about doing more wrong things while ignoring what needs to be done, including such private sector initiatives as the Keystone pipeline project, for example.

We can't afford to claim that the 'engine' that pulls the train is doing fine or even ok when it's performing worse than four years ago and is not likely, based on current trends, to get back to that level for another four years.

Government Spending

Property taxes pay for less than ~50% of local K-12 schools. State government pays for 40% and federal government kicks in over 10%.

State government pays for ~47% of Medicaid costs and the federal government pays for ~53% of the total expenses.

The federal government is running over $1 trillion deficits, adding to the national debt of roughly $16 trillion each and every day.

Where will the federal government get the money to allocate to local K-12 schools and states' Medicaid expenses, the largest of which is nursing home care for the elderly?

And where will the states get the money to allocate to K-12 schools and their portion of Medicaid expenses?

And what will local taxpayers decide about increasing property taxes in the midst of a housing price decline of 1/3 from its peak a few years ago?

Summing Up

The money for this government version of musical chairs or Titanic deck chair rearranging must originate within the private sector. That is, unless we intend to become a wholly owned subsidiary of China or another European like welfare state. By the way, those welfare states can't continue as is either. Something's gotta give, and soon, because governments can't keep spending money they don't have to spend, including the U.S. governments, local, state and national, too.

If we have only $8 to spend each year, we can't spend $10 in perpetuity. We either have to stop that excess level of spending or start making more money. And making more money can only come from one place. The private sector.

The President can't abolish the basic rules of economics nor can the rest of the politicians. Neither can We the People, no matter how much we'd all like to do just that.

Europeans are finding out the hard way that their long established social-democratic welfare state model is broken and unsustainable. We'll either heed that lesson while there's still ample time to do so or we won't.

Economics is economics, and common sense is common sense. We can't spend what we don't have, and we won't have to spend what we don't first produce.

In order to redistribute from the private sector to the public sector, we first have to have something to redistribute. It's really just that simple.

Thanks. Bob.

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