All I want for Christmas is a new economy. Ours is broken.
While there are a few positive signs that optimists can latch onto, it appears that either the country will go over the fiscal cliff or virtually no cuts will be made in the $3.8 trillion federal budget. If nothing else, current spending should prove that Keynesian economics doesn’t work. With a fourth consecutive deficit exceeding $1 trillion, optimists take as good news a drop in the unemployment rate from 7.9% to 7.7%. Considering the federal spending that has taken place in recent years, wouldn’t the economy be booming now if Keynesian economics really worked?
In November, 146,000 new jobs were added, exceeding expectations of 85,000, according to the Bureau of Labor Statistics (BLS). In spite of Sandy, according to the BLS, the unemployment rate declined to 7.7% from 7.9%. However, these preliminary figures could be more BS from BLS. Final BLS job figures for September and October were revised downward by 49,000 jobs. You may recall that the BLS stats brought the jobless rate below 8% just in time for the election. We’re betting that when final stats are released, the number of new jobs will not have to be revised upward.
Those cheered by the latest job figures can always find a black cloud in the silver lining by visiting Zerohedge.com, which correctly points out: “What is certain is that the broader mainstream media will continue to focus purely on the quantitative aspect of the report, while the real story over the past 3 years has been a qualitative one: a shift to lower paying jobs, a painfully slow (if any) rise in average hourly earnings, a transformation of the US labor pool to ‘Just In Time’ inventory as virtually all new hiring needs are met by temps, and finally a secular shift to an older labor force, as job creation in the 25-54 category since January 2009 is still negative!”
The biggest driver of the U.S. economy is consumer spending. Over the past four years, income for the average consumer has dropped by about $4,000. While the inflation rate has been relatively tame, prices for basics such as food and oil have increased significantly. On top of this, going over the fiscal cliff would cost the average household nearly $3,500 in new taxes, according to BloombergBusinessWeek.
So consumers need to lift the economy while taking a $7,500 hit to their incomes and paying more for essentials. The only way that will happen is if consumers use the federal government as a role model and spend more money than they earn. Lots more.
Merry Christmas, indeed!