Friday, November 07, 2014

Commentary: Politics and Jobs

by Bill McBride on 11/07/2014 02:49:00 PM

I enjoy economics, but I hate politics.

We all have different values and interests, so it is natural that we disagree on some public policy.   An open and honest debate would be healthy.  But politics is negative, destructive and dishonest.

Yesterday the Speaker warned the President not to "poison the well" of goodwill by taking action on immigration. In almost the next sentence, the Speaker poisoned the well by saying the House will vote to repeal the Affordable Care Act (a vote that will go nowhere).  No matter what someone thinks of both issues, the speaker's words were not helpful for constructive debate.

The Speaker isn't stupid. Being hypocritical is bad policy, but probably good politics - and that is sad.   A more positive approach would be to offer to work on areas of agreement for both immigration and healthcare (the areas of agreement would be small - but that approach would be positive).

And politics really bothers me when we discuss the economy.

If I wrote that Obama's 2nd term is on pace to be one of the best for private sector job creation in history - better than Reagan, and only trailing Clinton - that might surprise a few people. But it is accurate.

Here is a table for private sector jobs. The top two private sector terms were both under President Clinton.  Currently Obama's 2nd term is on pace for the third best term for these Presidents.

TermPrivate Sector
Jobs Added (000s)
Carter9,041
Reagan 15,360
Reagan 29,357
GHW Bush1,510
Clinton 110,885
Clinton 210,070
GW Bush 1-841
GW Bush 2379
Obama 11,998
Obama 24,3711
121 months into 2nd term: 9,991 pace.

It is correct that the economy is larger now than in the '80s, but demographics are less favorable now.  The recent job creation is happening with a decline in the prime working age population, whereas in the '80s the prime working age population was growing 3% per year!  This is unrelated to policy - this is just demographics.

Note: Some good news looking forward is the prime working age population is growing again.

Total employment did increase more in Reagan's 2nd term, but that was because of a huge surge in public employment. If the Speaker, yesterday, mentioned a push for 2nd term Reagan era public sector hiring, I missed it (sorry for sarcasm).

Here is a table for public sector jobs. Public sector jobs declined the most during Obama's first term, and increased the most during Reagan's 2nd term.  Note: From the WSJ: The Federal Government Now Employs the Fewest People Since 1966

TermPublic Sector
Jobs Added (000s)
Carter1,304
Reagan 1-24
Reagan 21,438
GHW Bush1,127
Clinton 1692
Clinton 21,242
GW Bush 1900
GW Bush 2844
Obama 1-713
Obama 2481
121 months into 2nd term, 110 pace

Overall the economy and job growth is doing pretty well right now (especially considering demographics).  One key weakness is wage growth, and I expect wage growth to increase as the unemployment rate continues to decline. If we had seen better policy over the last several years - like more infrastructure investment - than we'd probably already be seeing wage growth. Failing to make these supply side investments during a period with low borrowing costs and high unemployment, was probably one of the key policy failures of the last four years.

Usually both parties support infrastructure investment, but apparently it is good politics for Congress to oppose even the best of policies when the opposing party holds the presidency.  And that is depressing.