Don’t bet on Obama

When you consider the way President Obama’s economic spokesman tried to spin the US job numbers you begin to realise that Wayne Swan and Julia Gillard are novices in duplicity, despite their determined efforts to be the best they can be in that particular department of public life.

Alan Krueger, the chairman of the White House Council of Economic Advisers, was reported as saying that the August job numbers were “further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression.” He added that it was “important not to read too much into any one monthly report.”

I have been doing my own unscientific opinion poll on who people think will win (not who they would like to win) the US presidential election. It is running overwhelmingly in favour of Obama. This is not too surprising. Historically, incumbents have the edge in winning a second term; though in recent times George H W Bush and Carter were both defeated. Also, Obama is undoubtedly more popular abroad than he is at home. Distance adds to his lustre, or subtracts from his lacklustre, depending on how you look at it. Finally, not many people here keep close tabs on economic developments in the United States.

My own prediction is that Romney will win comfortably and I have put my money where my mouth is, albeit to a very modest extent befitting my status as a ninety-nine percenter. My rationale: no-one who voted for McCain will vote for Obama; many who voted for Obama will be driven by the state of the economy to switch allegiance (even if some won’t admit it in advance to pollsters).

The August jobs report from the US Bureau of Labor Statistics (BLS) showed that only 96,000 non-farm jobs were created in the month, when maybe around 120,000 are needed (depending critically on the underlying participation rate) simply to hold the unemployment rate constant. The unemployment rate fell from 8.3 to 8.1 per cent; but only because 368,000 people left the workforce. These were not good numbers by any stretch of normal imagination. While one monthly number (based on a sample survey) is neither here nor there, as Dr Krueger pointed out, the numbers stretching over a longer period reveal that the recovery is disquietingly feeble.

The United States lost 8,663,000 jobs over the two GFC-related recession years of 2008 and 2009. Since then, during the recovery period of 32 months starting from the beginning of 2010, less than half that number (3,981,000 jobs) have been regained. Taking into account the growth in the working age population; that is some 11 million jobs shy of the number required to bring the labour market back to its position at the end of 2007, before the recession began. And, it is worse than that.

The number of people self-employed has fallen by over 500,000 since the end of 2007; and the number of those employed but forced into only part-time employment has more than doubled. Based on a broad BLS count (including, for example, discouraged workers who have left the workforce) unemployment was estimated to be at 14.7 per cent in August this year compared with 8.8 percent at the end of 2007.

It is true that the US economy is showing signs of recovery, but it is the most insipid and job-starved recovery since Roosevelt prolonged and worsened the Great Depression. When this is put together with a raft of other indicators, including a still depressed and stagnant property market, falling median household income, record numbers of food stamp recipients, and federal government debt now exceeding $16 trillion, the economic situation remains dire. It is certainly far worse than when Clinton’s campaign used the state of the economy as its rationale for defeating Bush in November 1992. Then the recession of 1990-91 produced a fourth quarter 1992 unemployment rate of around 7.3 per cent, but without the despondency that characterizes the current economic malaise. If the rationale “it’s the economy stupid” worked for Clinton 1992, it will surely work again for Romney in 2012.

Obama’s pre-election promises to half the budget deficit and reduce unemployment to below 6% have come to nothing. Having splurged money wastefully, he has shown no sign that he is able or willing to put in place measures to reduce growth in government debt. He has placed environmental barriers in the way of economic developments; Obamacare in the way of small business job creation; and income redistribution ahead of wealth creation. Inexperience and left-wing shibboleths appear to have shaped his economic policies as they have his foreign policies. If he were to be re-elected, in the current circumstances, having performed so badly, it would say something troubling about the direction of democracy in America.

My view is that there are still enough people retired who have paid taxes, or who are working and paying taxes, or who otherwise understand how wealth and prosperity are created, to give Romney the presidency. We should all hope that this is the case. Four more years of Obama could do serious damage to America’s economy, the fabric of its society, and its position in the world; and that would potentially damage us all.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics