09.04.2012 0

Romney’s 12 million jobs challenge

Mitt RomneyBy Bill Wilson — In his acceptance speech for the Republican nomination, Mitt Romney promised if elected the economy would create 12 million jobs in his first four years in office. Considering we are presently in the worst jobs market since the Great Depression, with the longest period of high, sustained unemployment in 80 years, he’s got his work cut out for him.

Overall, since Jan. 2008, the economy has lost a net of 4.7 million jobs, according to the Bureau of Labor Statistics’ (BLS) establishment survey. 4.3 million of those were lost in the private sector: 1.7 million in manufacturing, 1.9 million in construction, 724,000 in private service providing, 811,000 in retail, 378,000 in information, 481,000 in financial activities, and 116,000 in professional and business activities.

These losses were offset by increases of 95,000 in mining and logging, 342,000 in education, and 1.37 million in health.

For Romney’s numbers to work, the economy would need to produce a net 3 million jobs a year at a pace of 250,000 a month. That’s problematic, because according BLS’ household survey, in the past three years, the economy has only produced jobs at a rate of 64,000 a month, while the noninstitutional population has grown by about 207,000 a month.

At full employment, 63 percent of the employable population would be working. Therefore to keep up with the growth of population the economy needs to produce about 130,000 jobs a month. Over Obama’s term of office, we have come nowhere near that.

Meanwhile, the labor force has been stagnant, only increasing at a pace of about 53,000 a month in the past two years, indicative of students staying in school longer or graduates simply not entering the workforce.

So, compounding Romney’s jobs challenge, there is a buildup of about 80,000 idle labor supply a month that if allowed to persist, will make the U.S. look like Spain or Greece in a relatively short time. Those nations have youth unemployment rates of over 50 percent.

By all measures, we are not in a typical recession, but a depression — which is characterized by a prolonged period of high unemployment and collapsing asset prices.

That is one of the major reasons why Barack Obama has failed to turn the jobs market around. He treated the crisis as if it was a cyclical downturn. It wasn’t, and it isn’t. Romney cannot make the same mistake.

What did the economy in was a gargantuan credit bubble, some $54 trillion of credit outstanding nationwide that had grown to some 372 percent of the Gross Domestic Product (GDP) by 2008. That was simply more debt than the economy could sustain — with more loans than there is money to repay them — and the wreckage is still being found.

The last time this happened in U.S. history was during the Great Depression. Consider the following chart produced by Dr. Lacy Hunt, chief economist at Hoisington Investment Management, showing two major credit cycles in the past 100 years:

U.S. debt as percentage of GDPThe deleveraging (i.e. repayment and default) process we are currently undergoing is the unavoidable outcome of these credit cycles. If credit creation becomes excessive, it creates a bubble that, as we have seen, has the potential to take the economy with it when it pops. Slowed output and fewer jobs in the aftermath is the predictable outcome.

So, Romney must face what Pimco CEO Mohammad El-Erian has described as the “new normal”. The problem as El-Erian defines it is “an economy that must find a way to safely ‘deleverage.’ We must overcome the many years during which policymakers lost sight of sustainable drivers of growth and jobs and instead ended up relying on excessive leverage, overindebtedness and an absurd sense of credit entitlement.”

And that is just one of the many impediments to economic growth and job creation facing Romney should he be elected. Others include a vast web of labor laws, energy production restrictions, new healthcare regulations, the highest corporate tax rate in the developed world, a worsening federal budget picture, and a weak dollar that all make it too costly to do business in America.

To deal with those, the Occupational Safety and Health Administration and National Labor Relations Board must be reined in, the Davis Bacon Act repealed, and the Wage and Hour Division seriously reformed.

The Environmental Protection Agency and Department of Energy restrictions on producing energy need to be lifted. Obamacare, of course, must be repealed, and its vast array of regulations unraveled.

The corporate tax should be eliminated all together, and the budget put on a path to be balanced over the next decade.

But all of that may not be enough. Finally, serious monetary and financial reforms would be needed to restore sound money, prevent credit bubbles, and reinstate real value to our money. Romney ignores this particular plank at his own peril. Failure to address our house of cards financial system is to ignore the elephant in the room.

Overall, we must lower the cost of doing business in the U.S. significantly to make us competitive again. That will create enough jobs at a fast enough pace to get us back to full employment.

On paper, 12 million jobs created may look like an almost impossible task, but in the free market, the impossible is done every single day. If elected, it will be Romney’s job to get the government out of the way of the free market miracle.

Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.

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