Friday's pending release on nonfarm payrolls will shine a burning light on our nation's need to promote growth and create new jobs. After losing 2.7 million jobs in 2008, estimates suggest we'll see another 500,000 jobs lost with this week's report, bringing the unemployment rate to 7.4%.
The reason for the continued sprial in employment trends can be seen in the recent job cut announcements from major U.S. employers. For example, in January alone these companies announced workforce reductions in the following percentages; Eastman Kodak 18%, Caterpillar 18%, WellPoint 36%, Rohm & Haas 59% and Circuit City 100%. According to the Wall St. Journal, a small sampling of just 52 listed firms announced a total of 241,300 job cuts thus far in 2009.
The Obama administration's response to creating jobs is a massive government debt and spending regimen that will, in his aspirations, create 4.1 million jobs-a number which has itself grown from just 2.5 million this past fall. His plan ignores both economics and history.
What helped turn the great recession into the Great Depression was the Revenue act of 1932. The act raised rates on income, estate and corporate taxes. The result was an unemployment rate in excess of 20% and a net change of GDP of -18.2% between May of 1937 through June 1938-nearly a decade after the crash of 1929. There were other exacerbating forces such as a move toward protectionism, but clearly none of Roosevelt's efforts to end the Depression brought about an end to unemployment or a return to trend G.D.P. growth.
Growth does not come from money printing or government deficit spending. It comes from encouraging the private sector to create new technologies and innovations that expand the amount of goods and services available for consumption. That can only be achieved by incentivizing the private sector to take risks (tax cuts). It also requires low interest rates that themselves can only truly be provided through sound monetary and fiscal policies (low spending, which is needed today more than ever).
Investors understand real growth and they understand that some things take time and cannot be forced or manipulated to occur by a central planning authority. They understand that the private sector is best at creating jobs that are viable and accretive to economic growth. Perhaps that is the reason why investors greeted the New Year with the worst January performance by the S&P 500 and Dow Jones Industrial average-ever.
Consumers can always hope for a favorable report this Friday, but the evidence in so far and the administration's reaction to the economic malaise promises more pain ahead in the future-and pain at taxpayer's expense, to boot!