Obama Promises Cuts as Employment Staggers Under the Weight of Low Corporate Tax Rates
The recession neared 3 million victims last month, as upward revisions for November and October made it four straight months with at least 400,000 or more payroll positions lost. The December number was 531,000 private payroll positions. In all, this recession has reduced private sector payrolls by 2,784,000 – that compares with 3,450,000 from the entire previous recessionary period which ran from January of 2001 until July of 2003.
But the internals are the date were even worse: the long term unemployed doubled from 1.3 million to 2.6 million, and according to the household data 380,000 people left the work force. The headline unemployment rate rose to 7.2%, which included an upward revision of unemployment going back to 2004. The broadest measure of under-employment "U-6" reached 13.8% with the number of people working involuntarily part time nearly doubling since the trough in 2006. It’s no longer the hidden problem.
Worse still, the birth-death model, which consistently under-estimated how many McJobs the last expansion was creating – bad jobs with no benefits in franchises and other "small companies," is now not predicting correctly how fast these pink collar and paper collar jobs are evaporating. This means these numbers will probably be revised upwards.
It is also a recession that is falling more heavily on people below 55, which is one explanation for the persistent disconnect between older Americans, and younger Americans, over the last two years.
The adjectives flowed: Capital Spectator chose grim, Portfolio went all the way to gruesome, and even the fumbling-for-excuses Swamp blog has finally joined the double digit unemployment club. Bespoke noted that this is the most brutal employment report since the massive 1982 recession.
The driver of this is the collapse in the mortgage ATM market, and the abysmal Christmas sales – restaurants and retailers both saw drops. This fuels further deflationary expectations. A year ago right wingers, such as the Cato Institute were crowing about low corporate tax rates. However, corporations "invested" in the credit bubble creating an "output gap." Instead of raising corporate tax rates and engaging in stimulatory spending, Obama’s economic plan is larded with tax cuts.
These are self-defeating, in that with unsustainably low tax rates, given the multi-trillion dollar run of deficits to come, the marginal incentive to invest is low, compared with shoving the loot out the door – "profitizing" – in the present. Obviously Obama’s economic team hasn’t read the memo entitled "Tax Cuts Determined to Strike in US." Krugman estimates that this plan will close only between one half and one third of the output gap, meaning that the recovery, when it finally starts, will be like the last two, with very long slogs of slow employment growth in the 1990’s, or continued job losses in the 2000’s.
The President-Elect’s plan is wrong, Reaganite, and retrograde. It is very similar to policies which created a persistent depressed economy in Japan – and represents the next step to the Japanification of the American economy, where credit spreads are high and economic activity is slow, because any new money is used to pay off debts which should have been written off, but have not been.
If this keeps up, they are going to rename the "Department of Labor" the "Department of Leisure."