Labor Day: Celebrating The Failure Of The Government's Employment Policies

How appropriate that this Labor day occurs 3 days before the president delivers a speech on jobs and the economy and only 3 days after another dismal employment report was released that shows that 14 million people are still unemployed and the unemployment rate remains at 9.1%. The employment report sent the stock market down 2 1/2% on Friday. For the Chicago area the unemployment rate ticked up to 10.3% in July and employment is back to July 1996 levels as you can see in the graph below. That’s 15 years with no net job growth and the Chicago metro area has lost a total of 320,000 jobs since peak employment in July 2007.

There is widespread agreement that the economy will not turn around, nor will the housing market turn around, until we see job growth. Furthermore, corporate profits are at risk as the threat of a double dip recession looms, which is why the stock market was down on Friday.
As anyone who has followed this blog for any length of time knows I don’t normally believe that the government should fly in to rescue much of anything. Usually they botch whatever they attempt and so far they have botched their attempts to create jobs. However, this employment problem is one case where I actually believe the government could have made and still might be able to make a difference if they could just get their act together.
You see, the fundamental problem is that the private sector just doesn’t need more workers right now. So we have at least 14 million very capable workers sitting on their asses with many of them getting paid to do so by the government. Meanwhile our entire transportation infrastructure is widely acknowledged to be in a state of disrepair. Roads, bridges, the freight rail system, airports, the air traffic control system, and ports are all clearly in need of an upgrade. Next time you are stuck in traffic on the Dan Ryan take a look at how many 40 foot trailers are on the highway and ask yourself why that freight isn’t traveling by rail at a fraction of the cost. Sure some of it is local delivery but a lot of long distance freight still travels by truck because the rail system is inefficient – especially hubs like Chicago.
So why don’t we put people to work fixing this stuff? These are projects that will actually provide a good return on our investment. At the end of the day we will have something worthwhile to show for all the money – unlike the typical government approach of creating jobs for the sake of creating jobs – e.g. building a high speed rail system that will never pay for itself, producing electricity at twice the cost of current technology, or paying people to buy homes a few months earlier.
Up until now the government has been approaching the problem in the typical fashion – sprinkling lots of money around to various special interest groups. Remember that stimulus package that was supposed to create all those jobs? It obviously didn’t work very well. Let’s review where the stimulus money went and it will become obvious why the program was an epic failure. Check that link and you will see that of the $710.8 B only 8% went to infrastructure programs that will have concrete benefits. The rest of the money went to further politically desirable agendas.
But suppose that $710.8 B had all been spent on putting people to work fixing the nation’s infrastructure? If we assume an average wage of $40 K per year you could have created almost 18 MM jobs for one year. Sure that’s a gross simplification. In reality there aren’t 18 MM workers who could be employed in infrastructure projects and not all the money would go to wages but you get the idea. The numbers are just huge. And if they had put enough people to work, who could then go out and spend their earnings, that would have created more jobs. And if those projects even had a 5% return on investment we would get our money’s worth out of them.
So the nation anxiously awaits another Obama speech on Thursday to see if any real solutions are around the corner. The President has just chosen a new head for the White House Council of Economic Advisers, Alan Krueger,  who is supposedly a strong advocate for infrastructure investment. That’s the good news. The bad news is that this is the same guy that came up with the bright idea of the Cash for Clunkers program which paid people to destroy perfectly good cars so that new jobs would be created making replacements – sort of like hurricane Irene created jobs.