Tuesday, June 5, 2012

What Creates Jobs?

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4
2005 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9
2006 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4
2007 4.6 4.5 4.4 4.5 4.4 4.6 4.7 4.6 4.7 4.7 4.7 5.0
2008 5.0 4.9 5.1 5.0 5.4 5.6 5.8 6.1 6.1 6.5 6.8 7.3
2009 7.8 8.3 8.7 8.9 9.4 9.5 9.5 9.6 9.8 10.0 9.9 9.9
2010 9.7 9.8 9.8 9.9 9.6 9.4 9.5 9.6 9.5 9.5 9.8 9.4
2011 9.1 9.0 8.9 9.0 9.0 9.1 9.1 9.1 9.0 8.9 8.7 8.5
2012 8.3 8.3 8.2 8.1 8.2

Don't you just love charts? Listening to the candidates about who creates more jobs, Obama or Romney, made me curious about some details we've always been told. Obama likes to say that he's created 4 million jobs and calls former President Bush a job killer, or that Bush created very few jobs in his eight years. 

Bush had eight years in office. During his first four years, his average rate of job creation was 0.51%. In his second term, his average rate of job creation was -0.84%. 

By comparison, Obama has been in office for just over 3 years. His average rate of job creation through 2011 (2 years) is 0.75%. 

If we stop there, the Obama team would be correct. They are creating more jobs. Bear with me a minute. I have a couple more numbers to throw at you and then I'll explain my thoughts. 

Since we can't fairly compare month to month, especially since Obama doesn't have the same amount of time as Bush had, we can only average out the figures. Each of the figures in the chart above are monthly unemployment rates. 

The average unemployment rate during the Bush years was 5.23%. 
The average unemployment rate during the Obama years was 9.15%. 

I have a few points to make on this and I apologize if you're not a statistical person. 

1. What effect does the change in tax rate have on unemployment? The tax cuts actually took place during the following year, and it does take some time for it to work it's way through the system to see the benefits or detriments of the change in tax rates. 

The average unemployment during 2002 was 5.3%. But in 2003, the average was 5.99%. Just using that, it would look like the tax cuts had a short term benefit to unemployment, if you want to consider six tenths of a percent as a detriment. However, there was another tax cut in 2003, which took effect in 2004. At the end of 2004, the average unemployment rate was 5.07%. If we use the same standard as above about it taking two years, then in 2005 the average unemployment rate was 5.08%. Virtually no change. But then look at 2006 and 2007. 4.22% and 4.61% respectively. 

2. What effect does spending have on unemployment? In 2009, Obama took office. In February of that year, one day following Presidents Day, Obama signed the stimulus bill. The average unemployment rate that year was 9.27%. 

However, I gave Bush a second year for the tax cuts to work their way through the system so let's do the same for Obama, after all, I don't want to be called a racist for not being fair to both. The average unemployment rate in 2010 was 9.62%. That's a four tenths of a percent increase. 

3. Which increases revenue to the government?  During the Bush years, following the tax cuts, the federal government brought in record amounts of income from taxes. During the Obama years, the revenues to the federal government have DECREASED. 

There is another comparison that is pretty important here. During the Bush years, he had a Republican House and Senate. During the Obama years, he had a Democrat House and Senate. 

With all Republicans, the tax rates were decreased, the revenue increased, and the unemployment decreased. With all Democrats, the revenue decreased, and spending exploded. 

This is not the first time this has happened. During the Reagan years, taxes came down, unemployment dropped and revenues to the government set record highs. 

This is what Democrats don't seem to understand. When the people have money, they spend it and they save it. When they save it, more investment is made. When they spend it, more businesses earn more money, allowing them to hire more people, invest more money and draw investments in their businesses. As the people make more money, they pay more in taxes even when they are paying a lower rate. Imagine if we lowed the business tax rate. Businesses would be able to hire more, they'd pay more in taxes because their businesses would be growing. 

Tax cuts don't need to be paid for but spending does need to be paid for. 

4. So why the difference in job creation? First of all, 5% -5.5% unemployment is considered full employment. I'm going to use just 5% to make it easy. 

Let's assume that we have a pool of 1 million people able to work. As mentioned earlier, the average unemployment rate during the Bush years was 5.23%. This means that of those 1 million people available to work, 52,300 aren't working. Obama has an average unemployment rate of 9.15% which means there are 91,500 workers unemployed and available to work. 

If each of those two Presidents were to find jobs for 10% of their unemployment pool, Obama would gain 9,150 jobs to his credit, but Bush, who gets the same percentage of 10% would only gain 5,230 jobs. 

By virtue of the fact that Obama has more workers available to create jobs for, it's simple math that he SHOULD be able to have higher numbers in job creation. 

Make no mistake, I'm not forgetting that many workers have been unemployed for so long that their unemployment has run out and they aren't counted in the unemployment rate now. I also understand that this wasn't a problem during the Bush years. After all, during just 2006 and 2007 the average unemployment rate was 4.42%. Bush just didn't have the pool of workers to draw from and the nation was not in the throes of a recession. 

Liberals will claim that Bush left a mess and Obama's numbers are actually caused by Bush, but if we were to look at economic growth (which is another topic for a later date), that argument falls by the wayside. 

What they won't tell you is that Bush warned us twice, with the last time being in 2005, that if we didn't rein in our spending, we'd end up with a huge economic mess and those problems would continue for years. Yet, the spending continued, and that includes Bush and the Republican Congress along with the Democrats. During the Bush years, the Republicans actually spent more than the Democrats ever spent. Unfortunately, since Obama was elected, the Democrats have regained that record and continue to add to it. 

It's not low tax rates that is the problem. It's the constant spending that is the problem. 

You're welcome to comment. 


No comments: