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On the surface, the July jobs report — the unemployment rate dipped to 7.4% last month thanks to a shrinking workforce as the economy added a disappointing 162,000 net new payrolls — is just another dismal data point in America’s “new normal” recovery. But it’s also an important milestone and metric for judging the Keynesian fiscal experiment known as Obamanomics.
In January 2009, Team Obama economists put together a report – half quantitative analysis, half sales pitch — outlining the potential economic impact of the proposed $800 billion stimulus. (See above chart from that report.) If Congress passed the plan, the report forecasted, the economy would generate enough additional demand, output, and employment that two big things would happen:
First, the unemployment rate would never reach 8%. Unfortunately, we hit 10% unemployment in October 2009. Failure number one.
Second, the unemployment rate would return to its long-term “natural rate” of 5% by July 2013 (a jobless rate, it should be noted, above the low points of the Bush and Clinton presidencies). Labor markets would be back to peak health. The Great Recession would truly and finally be over.
Mission accomplished by this jobless report.
Of course, we now know conclusively that this prediction — based as it was on the pixiedust magic of Keynesian fiscal multipliers — was a total failure, one even beyond what the July job numbers suggest.
This is important: Obama economists assumed the unemployment rate would return to 5% even without a stunning collapse in labor force participation. Why? Government stimulus would reignite the private economy, causing a return to 4% GDP growth or higher, growth not seen since the late 1990s.
In fact, the economy has only grown at half that pace during the recovery; even slower over the past year.
And once you take that labor force decline into account, adjusted for the aging of the US population, the “real” unemployment rate is between 9% and 10% while the combined unemployment/underemployment number is 14.0%. As a recent report from the Century Foundation calculates it, almost the entire decline in the unemployment rate during this recovery was because of declining labor force participation rather than increased labor demand.
Yes, the Great Recession was worse than Team Obama knew back in 2009. And other bad stuffed happened later, like the euro crisis. (Not to mention some good stuff like the Bernanke Fed’s unprecedented monetary easing.) Through it all, however, the White House stayed optimistic, even knowing the history of post-financial crisis recoveries. And there is no sign yet that Obama is reevaluating the notion that higher taxes and more government investment is the path to American prosperity, or acknowledging that uncertainty about Obamacare might be slowing the creation of full-time jobs.
Now, maybe the smart guys on Wall Street are right, and finally the economy is ready to really accelerate. Deutsche Bank, for instance, sees the unemployment rate falling to 5.6% by the first quarter of 2016 (including a less active labor force). If so, you can thank a) the Fed and b) the natural resilience of the entrepreneurial US economy. A job market recovery? Obamanomics never did build that.
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