About this silly notion we Americans have that the President can create jobs. Good read.
We are having a ferocious jobs debate, most of it fraudulent. If presidents could easily create jobs, the unemployment rate would rarely exceed 3.5 percent. But all they can usually do is influence the economy through taxes, spending and regulatory decisions -- and hope that job growth follows. In our market system, private employers play the pivotal role. They will add jobs only if: (a) demand justifies new workers; (b) labor costs aren't at unprofitable levels; and (c) they think healthy economic conditions will last. Electing a president based on job creation makes as much sense as selecting a doctor based on palm reading.
The jobs rhetoric captures politics' casual cynicism. John Kerry and John Edwards must grasp a president's modest job-creating powers; otherwise, they wouldn't be fit for the White House. Their jobs obsession is dishonest expediency. They know President Bush is vulnerable. To be fair, the deceit is bipartisan. The Bush administration is ready to claim credit for almost any good economic news.
The contrast with Iraq is instructive. The administration is accused of falsifying the case for war by distorting the intelligence on weapons of mass destruction. This alleged dishonesty is a legitimate issue. But no one considers it dishonorable to blame a president falsely for job loss (or to credit him falsely for job gains). The dishonesty is so routine that it's respectable. The press abets the hoax because it must report what candidates say and because it favors campaign combat over substance.
Admitting the truth is no fun: On jobs, presidents are mostly prisoners of the business cycle. The present cycle has been particularly confusing. On the one hand, the monthly unemployment rate peaked at 6.3 percent in June 2003, much lower than in the slump of the early 1990s (7.8 percent). On the other hand, job creation has lagged badly. By the government's payroll survey, nonfarm employment is about 2.35 million below its March 2001 peak and up 366,000 from its August low.
What went wrong? Job losses stem mainly from the aftermath of the recent boom. Even weak companies can flourish in a boom. There's enough business for almost everyone. Rampant optimism encourages expansion. Once the boom collapses, surplus capacity means that vulnerable firms shut, shrink or merge. It's survival of the fittest -- a process that concentrates business at efficient firms. This improves labor productivity (which is a company's output divided by its employees' hours) but can temporarily hurt employment growth. Productive firms do more with less.
Countless industries followed this script. Consider plastics. From 1999 to 2002, the number of business establishments dropped 13 percent and the number of workers 8 percent (119,000 jobs). "The industry felt [the boom] was going to continue forever," says Lori Anderson of the Society of the Plastics Industry. The same Darwinian squeeze afflicted retailing. From 1998 to 2002, Wal-Mart expanded by almost a third to 4,694 locations, reports Stores magazine; meanwhile Kmart and Sears closed almost 1,300 stores.
Facing a weak economy, a government can do three things: cut interest rates; run a budget deficit; and allow -- or cause -- its currency to depreciate. The first two promote borrowing and spending; the last makes a country's exports cheaper and its imports costlier. All these weapons have been deployed. Bush's policies are mostly standard economics; based on past patterns, these policies should have produced stronger job growth. But private employers have resisted hiring. "Economists are scratching their heads," says Randell Moore, editor of the monthly Blue Chip Economic Indicators, which surveys 50 economic forecasters.
Some jobs have moved abroad. Slow foreign growth and (until recently) the high dollar have hurt U.S. exports and encouraged imports. Mark Zandi of Economy.com estimates that almost 900,000 manufacturing jobs have been lost to the higher trade deficit. By contrast, he reckons that "offshoring" of service jobs -- call centers, software design -- has cost only about 200,000 jobs over the same period. That's out of more than 130 million jobs. There are other theories. By one, higher fringe benefits (mainly health insurance and pension costs) have deterred companies from hiring. Although wage increases are slowing, total labor costs including fringes are actually rising. They grew 3.8 percent in 2003, up from 3.4 percent in 2002. Another theory is that employers have delayed hiring because they worry that the recovery will falter.
We don't know. But what we can know is that policies from a President Gore or Kerry or Edwards wouldn't have improved matters much. Of course, Democrats might have discarded some Bush policies: say, tax cuts for the rich. Still, the main forces shaping the job market would have remained well beyond presidential reach: the boom-bust cycle (President Bill Clinton didn't create the boom, and the bust was unfolding even before Bush's election); weak growth in Europe, Japan and Latin America, which account for almost 40 percent of U.S. exports; and business cautiousness. Protectionism is no panacea. It barely touches job creation; America's trade problem is weak exports as much as strong imports. Even if every offshored service job had somehow been saved, the job picture wouldn't have changed much.
No matter. During elections, politics overwhelms reason. Perhaps continuing economic growth and a weaker dollar will soon produce more jobs. On average, the economists surveyed by Moore expect 166,000 new jobs a month in 2004 -- or about 2 million for the year. Whatever occurs, someone will be blamed or credited. In war, truth is often said to be the first casualty. It's the same in campaigns.
