Washington's Anti-Jobs Package

With the market giving us daily reminders that Washington's budget deal is a mess, pointing out a telling detail from the July unemployment report is almost piling it on. But to understand how we ended up with only 117,000 new jobs last month is to see that fiscal policy has been killing jobs. And with the decision to slash $2.4 trillion in spending by 2021, it'll only get worse.

The detail is this
The private sector actually added 154,000 new jobs in July, while governments nationwide shed 37,000. Governments have shed half a million jobs in the past year -- twice as many as they gained while the Obama administration's stimulus and 2010 Census hiring were in full force. It's no mystery why this is happening: Stimulus money ran out, and the teachers, police, and others whose jobs the stimulus preserved were out of luck. Local education employers alone have shed 200,000 jobs since mid-2009, according to the Bureau of Labor Statistics. My son's babysitter lost her teaching job.

This matters because the economy needs 127,000 new jobs monthly simply to keep up with population growth before unemployment can come down. By gaining 154,000 jobs a month -- and 2 million in the last 14 months on a base of 107 million -- the private sector is more or less doing its job. Not only is government not doing the same, it's going the other way, even though the Defense Department has added 58,000 jobs since Barack Obama became president.

Put another way: If government added 37,000 jobs last month, the total number would have been 191,000-plus and we'd be having a different conversation about the economy. If government employment had grown at the same clip as private jobs since May 2010, unemployment would be 8.5% and falling, not 9.1% and stagnant. (And the 2012 presidential election would be over already.) If government employment had only stayed flat, the jobs not lost would have cut 0.3-0.4% from the jobless rate.

Other stimulus beneficiaries
The stimulus was good for the private sector, too, including Fools. You can follow stimulus money directly into the job-creating business models of recent IPOs in clean energy, from Tesla Motors (Nasdaq: TSLA  ) to upcoming deals like Silver Spring Networks. But venture capitalists say fear of cuts was freezing the market for new clean-tech deals as early as the first quarter. The stimulus-funded push for electronic medical records also helped make winners out of Fool favorite Quality Systems (Nasdaq: QSII  ) , Athenahealth (Nasdaq: ATHN  ) , among others.

Similarly, the cuts will be nasty, and not just for government workers. Marriott International (NYSE: MAR  ) , for example, gets 6% of its revenue, and 13% of the performance fees that help it leverage profits, from hotels around Washington. Its reported second-quarter growth in revenue per available room (1%) was about one-eighth of the industry average, partly because government agencies slowed down bookings for meetings. Or look at Smart Technologies (NYSE: SMT  ) , a maker of classroom smartboards, whose shares dropped 70% as stimulus money schools had been using to buy its products dried up. And that was before the debt-limit package: Figure out for yourself what $950 billion in new defense cuts would do to Marriott, let alone defense contractors such as Boeing (NYSE: BA  ) or Lockheed Martin (NYSE: LMT  ) .

We have roads to build, schools to renovate and teach in, and so on. We just don't care to do it. The House of Representatives would rather eliminate inheritance taxes and keep all $1.1 trillion of annual federal tax expenditures. As Lawrence Lindsey said to George W. Bush to get him to cut dividend taxes in half, taxes on entrepreneurs need to be low. But how many entrepreneurs do you know who live on dividends and inheritances?

Fool contributor Tim Mullaney doesn't own any of the stocks mentioned in this piece.The Motley Fool owns shares of Lockheed Martin. Motley Fool newsletter services have recommended buying shares of Quality Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (21) | Recommend This Article (18)

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  • Report this Comment On August 12, 2011, at 4:45 PM, OldCountryBuffet wrote:

    You are definitely a keynesian. The growth of government over the last 15 years has far outpaced the growth of the economy. These government jobs should have never been created in the first place. Corporate America and the Middle class looked the other way because of good times. No one wanted to rock the boat when times were good.

    The government will free up 2.4 trillion dollars off the back of individuals and corporations over the next 10 years. The tax savings will spur the economy in broader based growth. It will create REAL GDP not phony government GDP.

    Three and four years ago stimulus from the goverment was critical. Now it is time to get government right sized to the current GDP. Some guy named Ronald Reagen did that beginning in 1980 and triggered the longest running bull market in U.S. history. We need another Reagen not the crummy Keynsian theory you are promoting.

  • Report this Comment On August 12, 2011, at 7:56 PM, deckdawg wrote:

    Tim, I think it would help you to go back and study European & American history starting from about 1650. Get a course on Adam Smith (by the way, Smith didn't invent capitalism ... he was trying to understand what he observed happening in his world ... completely & absolutely different from Marx. Study the two ... one was observing and one was constructing).

    Here's something you can meditate on ... on average, which is more productive .. a government worker or a private sector worker? Which is more productive ... a private business or a government agency? Which is more accountable? Would GDP increase if we borrowed enough money to hire every unemployed worker to dig holes & fill them back up? (Most, of course, could just watch... these are government jobs after all). I'm guessing you live in the Washington (DC) area. Get out and see the real world.

  • Report this Comment On August 12, 2011, at 11:16 PM, binkerman wrote:

    Old & Deck,

    Facts are stubborn things.

    1) Every economy in history has gotten out of recessions by deficit spending. Keysian works.

    2) Austerity programs have never worked anywhere and anytime.

    3)The US tax rate is the lowest in 50 years - that has created zero jobs. In fact the Bush tax cut has cost 3 million jobs.

    4) BIll Clinton raised taxes and created 20 million jobs.

    Facts are stubborn things.

  • Report this Comment On August 12, 2011, at 11:51 PM, NOTvuffett wrote:

    Raise my taxes so that I can hire more people and make the economy prosper! /sarc off

  • Report this Comment On August 13, 2011, at 2:38 AM, binkerman wrote:

    Not Boy,

    Tax rates are the lowest in 50 years. Many corporate pay 0% in taxes (GE, Microsoft, Google).

    That has not lead to hirings.

    You obviously knows nothing about running a business. I own a business - I hire when there is an increase in the demand for my company's services.

  • Report this Comment On August 13, 2011, at 12:11 PM, aljannelle wrote:

    Your article was good till you got into politics. I subscribe to motley for financial advice and info only. If I wanted politics, I would go to a political site. If it continues, I'll find another site that sticks to what I want and discontinue FOOL.

  • Report this Comment On August 13, 2011, at 2:07 PM, robwg wrote:

    I too joined FOOL for investment advice and not political commentary or opinion. This kind of partisan commentary should have no place here, if it continues, I too will find another source of investment advice.

  • Report this Comment On August 13, 2011, at 2:55 PM, deckdawg wrote:

    Hey bink, what you have listed are assertions, not facts. Facts may well be stubborn things, but assertions need to be backed up with facts & well reasoned logic to gain credibility. (Hint: your assertions are much too broad to even begin to defend ... you would need to narrow way, way down. For example, asserting that something has never happened throughout all history is going to be quite difficult to defend. Another example ... tax rates are the lowest in 50 years. Whose tax rates? How are those rates measured? I suspect (though have not checked) that the total amount of tax revenue collected by all levels of government is no where near the lowest it's been in 50 years. That's an assertion that would be narrow enough to provide facts & a reasoned argument to demonstrate how those facts support your assertion. One fact I know is that the percentage of my pay collected today for Social Security and Medicare tax is far, far higher than it was when I received my first paycheck in 1966 (even then, the amount withheld was a shock .... and I didn't know then that i couldn't see the other half being collected from my employer).

    Now for an example of an assertion that has definitely been disproved. 2.5 years ago Barack Obama, Nancy Pelosi & Harry Reid held hands together in front of a big "Mission Accomplished" banner and proclaimed that the largest deficit spending package ever passed in US history (fact) would prevent unemployment from rising above 8%. Clearly, that assertion has proved to be desperately false.

    Here's another example of an assertion recently proved false. For close to 70 years the Democrats have made an assertion (one might even say solemn promise) that if we just kept sending them 15% of our paycheck (15% since the 80's ... less before that) every month we would absolutely, positively be taken care of in our old age. Well, I've kept my part ... I've sent my payment in each and every month for over 40 years. Never missed once. But a couple of weeks ago the president of the US, and head of the Democrat party, told us that if the US couldn't borrow money for just one day, he might not be able to send out those promised SS checks. Sounds to me like that whole assertion/promise is on pretty shaky ground.

    Well, there you go bink. There are some really good books and courses available on logical reasoning, how to make a good argument, etc. If you are interested, I could recommend some.

  • Report this Comment On August 13, 2011, at 5:24 PM, mubo52 wrote:

    Would anyone agree that China is a communist country and that it uses socialist economic theory to develop it's industries and direct economic activity? Would anyone disagree that they are poised to overtake the US soon as the world's leading economy? If you cannot agree then you are likely in denial.

    .All countries find themselves in differing economic circumstances at any point in time. The US today is different that it was at any time in its history. I think that we are in danger of becoming irrelevant if we continue to follow our current course which includes too much spending. However we as a country need to increase local demand for goods and services within our economy and the principal way we can do that is to make sure people have employment. The government has a role in that as they have the ability to borrow money. The readers that indicate that they are offended by the opinions expressed by the author are likely offended by the particular opinions expressed not opinions in general. Every one needs to be thinking about the economy and also politics with an open mind or the country and economy could be in for a brutish descent. Sometimes it makes sense to do something such as raise taxes while at another time it may not. There should be no policy that is not at least considered. This may be the time to pay your share for your country.

    It certainly is time to work harder

  • Report this Comment On August 13, 2011, at 10:44 PM, deckdawg wrote:

    mubo, sounds like your heart is in the right place, but there are a few points where I think you may be a bit off. Almost no one would familiar with China would agree that it is a communist country. Mao tried to implement communism (as he understood it) in China, but after possibly as many as 20M people murdered by the state, country wide poverty, economic and social failure and misery, it was generally given up as a dodgy project. After Mao was dead, communist party leadership changed course drastically. (Lenin, Stalin, and Castro are other examples of similar failure). We do business in China, and I work closely with four people who have immigrated from there to the US. Based on my conversations with them, and some other reading, China's efforts at government directed economic activity are riddled with corruption and not too successful. China has all sorts of problems (including the lack of sound contract law which has been developed over a period of hundreds of years in the West). I would not invest my money based on China being on the verge of overtaking the US in economic power. Much of China still lies in poverty. No question they will continue rapid development, but I would anticipate a fairly rocky road ahead. Notice that, even with the problems in the US, global money still flocks to the US as a safe haven.

    As far as working harder and paying my fair share ... well, I've been working for over 40 years, served time in the US Army during the Vietnam war, am getting old, and hoping to be able to retire. I'm pretty sure I've been paying my fair share all along. (Might want to check up on some the political leaders ... seems like those who shout the loudest about the need for higher taxes are proven tax cheats. Charley Rangel, head of the House Ways & Means committee. A proven tax cheat. Timothy Geithner, appointed US Treasury Secretary by Obama ... a known tax dodger at the time of his appointment! (By the way, based on Obama's commitment to the Social Security promise made to me my entire working life, I may need to figure out if I can afford to retire without it)

    How about this ... let's see if the US government can demonstrate that they are using the money I'm already sending honestly and wisely before they even dare to ask for more? Let's see the kind of honesty, integrity, efficiency, accountability and frugality that is commonplace in US corporations and businesses for 4 or 5 years. Come back with a proven track record, and then ask for more money. Well, I'm old and tired and it's past my bedtime. Taking my teeth out and hitting the sack.

  • Report this Comment On August 14, 2011, at 8:42 AM, xetn wrote:

    Binkerman: Facts are stubborn things.

    1) Every economy in history has gotten out of recessions by deficit spending. Keysian works.

    2) Austerity programs have never worked anywhere and anytim"

    It is a shame that you do not know the facts:

    Fact !. In 1921, the US suffered a very deep post-WW1 depression. The government and the Fed did nothing and the economy recovered within a year. READ YOUR HISTORY!.

    FACT 2: Until 1913, the US had NO tax and during most of the 1800s had strong growth and two times proved that central banking was a bad idea. The fact that there were numerous boom/bust periods were because of money inflation and speculative bubbles.

    Fact 3: Neither Bill Clinton nor any other president has ever created one single job outside of the federal government!.

    The Austrian School of economics' "Theory Of The Trade Cycle" first posited by Ludwig von Mises and expanded on by Nobel winner FA Hayek lays the blame for ever boom/bust on the expansion of the money supply by banks (mostly central banks) which keeps interest rates at artificially low rates which triggers booms and ultimately is the cause of the resultant busts.

    The use of the term "GDP" is heavily influenced by government spending and should be replaced with a true measure of the private economy.

  • Report this Comment On August 14, 2011, at 11:48 AM, TMFDiogenes wrote:

    "The use of the term "GDP" is heavily influenced by government spending and should be replaced with a true measure of the private economy. "

    That's because GDP is heavily influenced by government spending. So is employment. When interest rates are at 0% and the private sector is slack, government spending increases both. So do cash payments to people who spend money.

  • Report this Comment On August 14, 2011, at 3:34 PM, tomcoffey wrote:

    The motley fool is not the place for political commentary and the fool should not allow it in their publications particularly when the facts are nothing more than conjectures. Please don't subject the fool community to such observations.

  • Report this Comment On August 14, 2011, at 11:17 PM, ershler wrote:

    The main focus of political debate here centers on the extent of involvement of the government in the economy. That seems relevant here.

    xetn,

    The Tariff Act was passed July 4th, 1789. Tariffs were the largest contribution to the Federal budget until surpassed by income tax.

  • Report this Comment On August 15, 2011, at 10:00 AM, WestBend1 wrote:

    I have heard many people talk about how corporations are not paying taxes. Walmart, Ford, now Microsoft and Google. When I go to their income statements, it shows they are paying income taxes. From the Fool website, Microsoft paid taxes at a rate of 17.5% of pre-tax income. Google paid 21.22% of pre-tax income. These are less than corporate averages, but hardly no taxes. Walmart paid 32.2% of pre-tax income in taxes in the last year.

    Which loophole is being used by Microsoft and Google that allows that lower rate?

  • Report this Comment On August 15, 2011, at 11:54 AM, TheoryMeltFool wrote:

    This is great. The more jobs Washington cuts, the more buerecrats will be unavailable to enforce all the unnecessary regulations that is causing so many companies to move elsewhere.

    I'll short Keynseians any day of the week.

    China is currently in one of the biggest property bubbles the world has every seen. Search youtube, there are countless manufactured metropolises with no occupants or businesses, just newly abandonded buildings, communities, and cities.

    The US will be back on top once we realize that China is a mirage.

  • Report this Comment On August 15, 2011, at 12:44 PM, financeguy85 wrote:

    Tim,

    Well done. The political right in this country cares about one thing: not paying a dime of taxes. Never mind the fact that our infrastructure is crumbling, our education is deteriorating and the wealth disparity between the rich and poor is escalating at a horrible rate.

    This comment will surely be buried underneath the wave of know-nothing Republicans who cry like petulant children about the horrors of having to pay taxes, but that doesn't change facts. Tax rates on the wealthy need to go up.

  • Report this Comment On August 15, 2011, at 4:32 PM, fightinag04 wrote:

    I have sat on the sidelines for long enough here! I'm probably only going to infuriate people, but I must say, I think deckdawg has been the most compelling so far. And I agree that while political rhetoric over social issues has no place here, the open discussion of the government's role in economics, whether it be trade policy, tax rates, etc. is definitely important.

    I don't think the political right disagrees with paying taxes. It just seems like Washington has a hard time proving they are responsible with the money with which they are already entrusted. As someone who spent time in the Army, I can personally attest to that. So much food and ammunition was wasted during a typical field exercise, simply shot up for no reason or thrown away, because if it was not all used, we would not be allocated any more the next fiscal quarter; we literally had to use everything we had whether necessary for training or not, or expect nothing else the next year. There is absolutely zero incentive for leaders at any level to be judicious in the allocation of resources within the government, which is why it costs the government significantly more to do something than it does a private company. Those who are judicious simply lose their resources to those who aren't, whether that be budget money, personnel, or equipment. Case in point, the average federal employee even makes more than the average private employee:

    http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N...

    I would highly doubt that that data has changed at all in the nearly 18 months that have passed since it was written.

    Most conservatives would probably say that there is a great need for education and infrastructure improvement, but that it should be the responsibility of the states, since states know what their own greatest needs are. They would probably also say that the government's role is to protect it's citizens, whether it be from foreign or internal threats. I know of nobody that is conservative saying that they would appreciate or tolerate being swindled like Bernie Madoff did to thousands, or like Enron did in its shady accounting.

    Finally, define wealthy. Are we basing this on net worth? Plenty of retirees rely on safe income investments, slowly pulling 4% out of their hard earned money accumulated over a lifetime, but don't make anywhere near what we might call high income. Or perhaps they purchased land that has steadily increased in value while their bank accounts have stayed put. Is this based on net income? If so, $250,000 for a family of 4 in Manhattan or San Fransisco doesn't go nearly as far as it does for a family of 2 in Omaha or Houston. Would you seriously raise taxes on them when they might be struggling themselves? And who is qualified to decide this? And what incentive do people have to work harder and excel if they know that it will only push them to the "wealthy" status, where the fate of their money is then determined for them, whether justified or not? I'm sure someone will throw the "golden parachute" or "rich CEO" argument out there. Keep in mind, that is a VERY small portion of executives, much less our society, and by no means represents most hard working people who earn what some would call "wealthy".

    I think the biggest problem our country faces is a loss in credibility from the government. To say that our government should be trusted with even more money does not make sense. I'm perfectly willing to listen to any idea; I just have yet to be convinced that raising taxes and maintaining entitlement programs at their current level is the best thing. I will even go against most conservatives here and say that the DOD could be trimmed. I, and I'm sure others, would welcome someone who could intelligently explain it me without throwing in the typical anger.

    Long write up, but that's my two cents!

  • Report this Comment On August 15, 2011, at 4:50 PM, racchole wrote:

    Anyone bashing the author should be ashamed to call themselves a "Fool." These guys write articles day in and day out. They are ENTITLED to any opinion they choose, whether that be political, economical, or anarchic in nature. If you don't like their opinion, tough luck. To publicly boycott the site because some of the authors inject political discussion in their writing is downright foolish.

  • Report this Comment On August 16, 2011, at 4:36 PM, ronhartman wrote:

    TAX FAIRNESS –

    I rebutted “FairTax.org” in my local paper back in September 2004.

    Back then the Federal Reserve still had a “brag” on its website that it processed an average of $3 trillion ($3,000,000,000,000) in payment transfers every business day.

    Similarly back then the IRS boasted how it collected some $2 trillion ($2,000,000,000,000) in tax revenues for the Federal government that past year, from a myriad of sources - beyond just Federal income taxes alone.

    When I was still in my 25-year career as a Federal savings bank examiner, I had this idea and almost everybody looked at me like I was crazy.

    I still think WAY outside the box.

    Who says we need to continue letting a bunch of accountants and attorneys get rich while they represent huge corporations and are quibbling with the IRS and with Congress over what should be “current taxable net income” before potential use of loss carry-forwards and loss carry-backs?

    And why let them continue their arguing the merits of what special write-offs should apply only to a particular client or to a particular industry?

    And why should a corporation pay only 12.5% instead of 35% Federal income tax by moving its mailing address to Zug, Switzerland?

    Even before 2004 I had reached the conclusion that in order to get rid of political bribery and graft, the politicians and the cadre’ of accountants and attorneys must be 100% neutered and powerless to continue dreaming up and approving special tax gimmicks for a privileged few.

    The KEY idea is one stemming out of bankruptcy laws – CASH IS KING!

    If you have no way to raise cash to pay for your business or personal choices – you are broke!

    True “conservatism” is that each person and each entity should stand on their own.

    They should be neither ‘incentivized’ nor penalized by the government for their choices in how they spend their monies, nor for the sources of their cash revenue inflow streams.

    KEEP IT SIMPLE & SAFE = K.I.S.S.

    Back in the 1990s I thought that a tax on cash inflows of 2% to 3% may be needed to meet all GOVERNMENT needs. I instinctively felt that a higher rate would foster an underground economy.

    Imagine how I felt after I did the math calculation shown in my rebuttal and I had discovered the low percentage needed!

    With these two simple truths admitted by two government sources, it was an easy solve!

    $3,000,000,000,000 daily average payment transfers x 250 business days = $750,000,000,000,000 [that’s right - $750 trillion] Let’s see – 1% of that is $7.5 trillion!

    Way too much! One half of that (which is a measly ½ of 1%) would be $3 – ¾ trillion and still way over the $2 trillion the IRS then bragged about collecting! Oh my God!

    One half of that (which is a measly ¼ of 1%) could yield almost $2 trillion (or $1 - 7/8 trillion - $1,875,000,000,000!)

    Hey – there must be at least $125 billion of fat and waste they could find and trim out of the Federal budgets? Now they admit to much more than that on TV!

    Every entity with any financial transactions here would pay the same rate on monies – and all funds received here would be required to be deposited through the USA banking system - before leaving the country.

    Every Arab-OPEC transaction!

    Every Communist Chinese transaction on stuff we imported, while we exported our manufacturing jobs to them and our people wallow in self-hatred, now on unemployment.

    Everybody!

    Everything!

    NO EXCEPTIONS!

    NO EXEMPTIONS!

    NO DEDUCTIONS!

    What is not to like about this?

    Want to sell some $300,000 of stocks on which you made a $200,000 profit? Pay ¼ of 1% on the $300,000 sales proceeds received – no need to worry whether you held it for one day or for 20 years.

    Say your Grandma died and left you $30 million? No more death tax! Pay ¼ of 1% on the $30million – or $75,000!

    Hey you Republicans – what is bad or wrong about that? You want it tax-free?

    Get over your silly idea of making corporations into Gods that you genuflect to as your masters – and the idea they should not have to pay any US Federal taxes because they create jobs – [albeit no longer in the “I.O.U.S.A.”, but instead in some dung-hole corner of the world.]

    Now after eight years of misfeasance and malfeasance perpetrated by George Walker Bush (“W”), including two unfunded wars in Iraq and Afghanistan (one being a fraud and a scam on the American people with fictional claims of their weapons of mass destruction)…..

    and unfunded “doughnut hole” Rx drug benefits rammed through by Bush’s Republicrats…..

    and after “W” was handed an operating surplus by Clinton that he turned into a GIGANTIC deficit with his side-kick – Cheney – proclaiming: “Deficits don’t matter”…..

    now it is likely that $2 trillion per

    year are a trifle –

    and now perhaps we should require $3 or even $4 trillion in annual Federal revenues?

  • Report this Comment On August 17, 2011, at 12:09 AM, osokind wrote:

    Are you saying that we need more government money, to hire more government workers to supervise the extra paperwork to oversee the new regulations that the government has imposed?

    Maybe it is the uncertainty facing our hard-working private job holders, that keeps them from embracing our current economy.

    I'm very disappointed to have read this!

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