When asked about the huge federal deficits Secretary of the Treasury Geithner answers: “growth first, then the deficit.” What he should have as his number one priority is jobs. The “jobless recovery” is an oxymoron. Without a substantial increase in the number of jobs the recovery will either slip away or be anemic. The President and his advisors know that the labor market is on life support. In response the President is holding a summit meeting to find solutions to the jobs tragedy. And make no mistake the unemployment mess is national tragedy. The economy has lost 7.3 million jobs since the recession began. Unemployment benefits run 99 weeks, a national record. Still there are few jobs available when benefits run out. Nationally there are six applicants for every job opening. In construction the ratio is 25 to 1.The ranks of the homeless are growing. Democrats and Republicans know as do both the left and right that we must start creating jobs soon or we face a dismal future. They also should know what it takes to create jobs. Sadly the evidence is growing that too many political leaders are bent on following policies and creating laws that are job killers.
The Cap & Trade legislation that passed in the House of Representatives is a job killer. It alone would impose a record tax hike, estimated to cost every household $6,800 a year. That is in addition to higher electricity costs. The President visited China. There he had a clear view of how to create jobs and how to avoid the job killers. Officials in Beijing have said no to the proposed climate change rules. They understand that their economies cannot afford the high price of such policies. China has long faced a critical need for jobs. For the last few decades skeptics have warned that the Chinese miracle was going to flounder because of high unemployment and a lack of new jobs. The skeptics have been wrong. Beijing has focused on policies that stimulate the private sector. Even the recent Chinese stimulus package was focused on projects that support the private sector. And the money was spent quickly, giving China’s economy a real boost. Now skeptics worry that China’s economy might be growing so fast as to overheat. If only we could move in that direction. Central bankers know what to do to stop overheating and control inflation. Getting the economy growing after a deep recession is the greater challenge.
Here in the United States we are going down a different path. One look at the House version of Cap and Trade makes you wonder what on earth they are thinking. There is a lot in that bill. Consider one aspect, homes. Under that bill you would need permission from the EPA to sell your home. To get that permission you would have to have the energy efficiency of your house measured, at an estimated cost of $200. Next the EPA will tell you if your house meets the new energy and water efficiency requirements. If it doesn’t you will have to upgrade your home, replace windows, buy a new heating system, etc. at your own cost. Next you get the house measured again for another $200 fee. When you finally get your home up to the current standard you will get a “label” that must be prominently displayed. If you don’t follow these regulations you will not be able to sell your house. The EPA would raise the standards every year. If this ever passed into law the housing market would be crushed. The cost of new construction would rise. Fewer new homes would be built. Existing house prices would take another nosedive. And there is much, much more nasty, anti jobs material in the bill. Take a look: http://www.govtrack.us/congres/bill.xpd?bill=h111-2454.
Are the members of the House who voted for this bill completely out of touch with the reality of an economy weighed down by double digit unemployment? You might think so until you read the New York Times and articles from the Economic Policy Institute. Bob Herbert writing for the New York Times this month said he has long believed the private sector cannot create the millions of jobs we need. He says we need to rethink our entire approach to unemployment. By that he means instead of the Federal Reserve and federal government spending trillions of dollars to stimulate the private economy the government should create jobs directly. Herbert points to writings by Ross Eisenbrey of the Economic Policy Institute. Eisenbrey says the private sector by itself cannot create the number of jobs needed to bring the unemployment rate down. Like Herbert he wants government to step up job creating efforts by help the states and launching large infrastructure projects. Keep in mind that roughly 25 million Americans work for state, local and federal governments. Where does the money come from for those paychecks? It comes from taxes collected from the private sector. Tax collections have collapsed under the weight of the recession. State and local governments have frozen hiring. Some are being forced to reduce the number of employees. Editorial writers like Herbert and think tank members like Eisenbrey do not tell us where they would get the money to pay for their policies. Likewise the members of the House do not say where homeowners would get the funds to comply with the Cap & Grade rules and regulations. They simply assume the money will arrive and therefore new jobs in the home remodeling industry will multiply. It does not require a degree in economics to understand they are totally wrong. Hopefully this bill will die in the Senate. If not we will likely see a political revolution at the polls a year from now. Americans are not used to double digit unemployment. Every one of the 108 million who have private sector jobs worries that they might be next to get the pink slip. None will relax and resume spending and investing until they see hundreds of thousands of new jobs being created every month. Politicians who do not grasp that reality will likely get the boot and be out of a job a year from now. The bottom line for investors is that the jobs situation is still very serious. As can be seen from the stock market’s recovery there is opportunity. But this time opportunity comes along with unprecedented risk. The best strategy is to diversify, think globally and do your own due diligence.