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Jobs hinder debt deal

By Staff | Jul 10, 2011

With retail sales, factory orders and manufacturing metrics indicating we may be exiting the economic soft patch, the second half was off to a promising start. That is until the only metric that matters – jobs – was released. Friday’s Labor Department report was a real dud. A net of only 18,000 jobs were added in June.

After ADP announced a better-than-expected 157,000 new jobs on Wednesday, economists quickly revised their consensus number up from 108,000 to 125,000. Even when they cheat they get it wrong.

The jobs report was universally bad. April and May were revised downward by 44,000 and average hourly wages also declined. The only good news was a decline of 39,000 in government sector jobs. It was reported that the sides may be close on a framework for a debt ceiling deal but the dismal jobs report may throw a monkey wrench into the negotiations.

I chuckled during last Thursday’s CNBC interview with Warren Buffet when he offered to have Berkshire Hathaway pay its taxes early if a debt ceiling agreement isn’t reached and the government needed cash. First Goldman Sachs, now America. I wonder what it’s like to be in a position to float cash to the world’s richest country.

Buffet is an external optimist and is fond of mentioning that we have always managed to pull ourselves from the abyss. The thing about that belief is that it’s true until it isn’t. I’m sure the Greeks, Romans and British all thought the same thing. Remember, before Vietnam we had never lost a war.

So as patriotic as that mindset may be, I consider it dangerous thinking. Believing that no problem is insurmountable can lead to problems becoming insurmountable.

The national debt is a good example. In 1940 the debt ceiling was $49 billion. Granted, that was 1940 dollars, but with the exception of the World War II years, the national debt ceiling increased only incrementally until 1974. Shortly after the attack on Pearl Harbor the debt ceiling was doubled and then doubled again in 1943.

After 1974 the debt ceiling curve looks like the proverbial hockey stick. In 1984 the $1.82 trillion debt ceiling was over twice the 1974 level. By 1994 it had almost tripled to $4.9 trillion. Ten years later it had doubled again to $8.18 trillion. Today, less than 10 years removed from 2004, it will have almost doubled again. And we’re not talking about dramatically inflated dollars.

So yes, we survived the Great Depression. We not only survived Pearl Harbor but eviscerated the aggressors. And now we have begun to recover from the Great Recession. However, none of that is a guarantee that no future obstacle will be too great to overcome. My preference is to solve problems before they hit the “great” stage.

Thus it would be superb news if Washington began acting responsibly. And by that I mean that they should reduce spending, simplify/adjust the tax code, and address entitlements. It will take all three to get us back on course.

The states have certainly got the message. Forty-six states enacted new budgets on time and spending cuts rather than tax increases was the budget balancing method of choice. More than half the states considered legislation targeted at curbing long-term liabilities such as employee pensions and benefits.

According to the Labor Department it costs about $12.44 more per hour to employ a state or local government worker compared with a private sector employee. In the first quarter, state and local governments spent approximately $40.54 per hour worked for workers compared to $28.10 per hour for the private sector. That either means the private sector is 30 percent more efficient than local governments or local governments provide 30 percent better service.

Hmmm… tough call.

As the jobs report indicated, states have also been cutting their workforces. According to the Labor Department, since the start of 2010, states have shed 350,000 workers or 1.8 percent of the cumulative state total.

Think about that for a moment because it illustrates how out of control all levels of government have become. If 350,000 is 1.8 percent of the total workforce, then the total number of local government workers equals 19.44 million. According to the latest census, there are about 194 million people between the ages of 18 and 65. That means one out of every 10 people of working age works for a state.

Before the jobs report was released, rumors were that the president and congressional leaders may have agreed on a grand plan to reduce the deficit by $4.5 trillion over the next 10 years. Interestingly, the proposal was the largest of three presented by Mr. Obama. It seems counter intuitive that those involved would choose the biggest plan but it makes sense if you factor in political egos and the 2012 election.

A major overhaul of spending, taxes and entitlements constitutes legislation that would be talked about for decades. It would also allow all incumbents to declare victory just in time for next year’s election. Everybody wins for a change, including us. Let’s keep our fingers crossed that the deal doesn’t get derailed.

Author, professor, entrepreneur, radio and TV commentator, Tony Paradiso is a marketing and management expert and CEO of Phoenix Finishings.


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