Disappointing US Jobs Report – Country Needs Bipartisan Reforms – Time To Allow The Centrists In Both Parties To Take The Lead And Enact Laws That Will Recreate Confidence

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By Paolo von Schirach

May 4, 2012

WASHINGTON – A really lousy jobs report. Only 115,000 new jobs created in the US in the month of April. And the unemployment ticked down to 8.1% just because 300,000 Americans dropped out, and so they are no longer counted as unemployed. But the really scary item is the percentage of Americans in the active labor force, the so called “labor participation“. It dropped from an all time high of 67.3% in the late ’90 to only 63.6% this year. And the chart shows a precipitous drop from 2008, the year in which the terrible recession started in earnest, with no recovery. Almost a straight line pointing down.

Blame game

Politically, this anemic labor growth trend damages President Obama. Tougher to get re-elected with such a modest economic record. But the problems run deeper. Far too easy to assign blame to the President. Certainly he can be blamed for his choice of policy priorities. He spent the crucial first two years of his mandate on the health care issue. Important yes, but not as critical as the economic recovery. He provided no leadership on fiscal or tax reform.

That said, the Republicans have been mostly obstructionists, believing that any kind of deal with this Democratic President was bad politics. And so, with an opposition practicing a scorched earth policy, and a President prisoner of equally partisan Democrats, after an awful recession almost nothing of substance was accomplished aimed at recreating more confidence among business leaders. Right now we are down to cheap, populist slogans about “taxing the rich”, and “no new taxes under any scenario”. Very productive.

Business world would like to see broad, bipartisan reforms

While public policy is only one piece of the economic puzzle; it is a very large piece. Corporations would have appreciated a bipartisan, therefore sustainable, fiscal recovery plan that would have included a sweeping tax reform, (with fewer rates, no more loopholes and lower corporate tax rates), and serious entitlement reform. Getting any of this done is very complicated; but not impossible. And yet we got absolutely nothing done because of a political system prisoner of opposing ideologies.

The US is not yet penalized by its creditors in terms of higher interests rates on its ballooning national debt only because Europe’s troubles, at this time, are far worse than ours. And so US bonds look more attractive than Spanish or Italian bonds.

Painful de-leveraging

That said, there is unfortunately a lot more. This was not an average recession. This recession was caused by massive amounts of debt, while real assets were overvalued because of the housing bubble. Now homes are worth much less, while people are still carrying a huge chunk of the debt load they contracted in the go-go years. Getting out of massive debt is a slow process. In the meantime, private consumption cannot go back to what it used to be because millions of people trying to pay back debts just do not have that much money to spend. And here we are talking about the lucky ones who have jobs.

Business not investing much

The only good news is that most businesses that survived the recession, having shed labor and costs, are now leaner and in much better shape. They sit on a lot of cash. Yet they do not invest much in part because of lower demand and in part because they do not get inspiring signals from Washington. They see only policy paralysis due to political animosities.

Divided government can function only through compromise

Let’s agree on this. This US system that allows divided government can function and deliver useful public policies only through political compromise led by the centrists in both parties. The trouble is that they –the centrists– are now practically extinct. If president Obama gets re-elected, there is a very good chance that we shall have more divided government, with the Republicans controlling the House and possibly even the Senate.

In this scenario, unless America wants to commit suicide by self-asphyxiation, it would be to wise allow the centrists in both parties to take the lead, broker deals and get something constructive done. This mess has gone on far too long.

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